March 28, 2008	Friday	Rabi-ul-Awwal 19, 1429

KARACHI, March 27: The current account deficit crossed the full year target within eight months of the current fiscal year making the problem as big as it never was for the government yet to be formed in Islamabad.

The State Bank on Thursday put the latest data of current account balance which is actually an imbalance totally against the country’s ability to make payments of its foreign bills.

The SBP reported that the current account balance has reached negative $8.421 billion during the first eight months of 2007-08 that is 43.7 per cent higher than the corresponding period of last year. Previous year’s eight months witnessed a current account balance of negative $5.857 billion.

The new set-up would have to face a problem inherited by the previous government which did not make any strategy to deal with the rising problem of current account deficit.

The deficit in eight months reached 5.3pc of Gross Domestic Product (GDP) which is higher than the full year target of 4.8pc.

The country’s ability to continue to make payments of its foreign bills has been shrinking with the rising trade deficit, including highest-ever petroleum prices.

The foreign exchange reserves of the country have also been declining fast during the current fiscal.

The current account deficit of eight months is close to the figure of trade deficit during the same period. The trade deficit during the eight months was $8.970 billion showing that the main thrust on the imbalances has come from the trade deficit.

Further, the trade deficit has been under stress because of higher oil prices, sudden jump in the import of food items, especially wheat, and huge import of power generators and luxury items.

Analysts said the new government might not be able to deal with this situation through any new strategy as the current fiscal year was nearing its end.

“The new government is bound to borrow heavily to meet the rising current account deficit,” said a brokerage house analyst.

However, the flow of foreign exchange into the country increased from two main sources. During the eight months, remittances sent by overseas Pakistanis rose by 21 per cent while the foreign direct investment also increased despite high level of uncertainty in the country since the beginning of the fiscal year.

The foreign exchange inflows into the stocks business vanished during the period; however, after the general elections the investor confidence was regained in March.

The political uncertainty is still dominating the economic scenario in the country. In a recent report the rating agency Standard and Poor’s predicted that the budgetary deficit would reach 6 per cent of the GDP for current fiscal year.