January 26, 2008	Saturday	Muharram 16, 1429

KARACHI, Jan 25: The current account deficit sharply widened by 31.1 per cent during the first half (July-Dec) of 2007-08 threatening the country’s ability to meet rising payments for import of goods and services crucial to achieve 6.5 per cent economic growth target.

The latest figures issued by the SBP on Friday showed that the current account deficit stood at $6.138 billion during July-Dec as against $4.679bn the same period last fiscal.

The half-yearly figures indicate that the full year current account deficit may cross the $12bn-level posing serious threat to the economy as the foreign exchange reserves are already depleting.

The current account imbalances are being met through inflows of foreign investments, remittances, privatisation proceeds, floatation of Global Depository Receipts (GDRs), issuance of Eurobonds in the international market and borrowing from international donors.

The county has been resorted to more borrowing instead of narrowing the widening C/A deficit, including the bulging trade gap which has increased the debt burden on the country.

The rising gap between export and import of services has also created problems for the country. During the period under review the export of services recorded declining trend, while imports rose significantly. The services’ import stood at $4.673 billion during July-Dec while exports at $1.392 billion.

The privatisation process since the beginning of this fiscal year has been stagnant due to unfavorable international and domestic environment forcing the government to delay its plan for offering shares in OGDC and National Bank through global depository receipts (GDRs).

Analysts observe that the GDR assignment has been left for the new government after general elections scheduled to be held on February 18, 2008. However, they maintain that even the new government will not be able to go for GDR issue during the current fiscal year.The soaring trade deficit has been the prime culprit behind the current account imbalances.

The previous government had not been able to materialise its idea of borrowing up to $1 billion through issuance of Eurobond.

Analysts believe that only the option to meet the rising current account deficit is the launching of GDRs and Euro Bond. However, the government may opt to borrow directly from the global market at the commercial rates which would be costlier than Euro Bond.

After emergency on November 3, 2007, the international rated rating agency, Standard & Poor’s Ratings Services revised its outlook on the long-term foreign and local currency sovereign credit ratings of Pakistan to negative from stable. This rating downgrade would go against the country’s plan to borrow through Eurobond and GDR.