KARACHI, Aug 20: The current account deficit rose to $1.010 billion in the first month (July) of the current fiscal year threatening the payment ability of the country amid fast eroding foreign exchange reserves.

The trend is alarming as the country’s reserves declined to around $10 billion from $16.5 billion in October 2007. The C/A deficit stood at $816 million in July 2007-08.

The government said the reserves were enough for three months imports. However, the fact is that instead of dollar inflows, the outflow of the greenback is taking the country towards default-like situation.

Last year the country had reserves enough for seven months’ import while the rupee was stable and inflows were normal.

The July’s current account deficit is not only higher than last year, but shrinking forex reserves and the falling rupee has threatened the country’s viability to make timely external payments.

The average monthly current account deficit could go further high in next few months as the previous trend showed the pattern of import growth.

Analysts said both export and import would rise in coming months as it had been a trend for a decade.

“The oil prices have gone down from $147 per barrel to about $112 barrel and will reflect in the import figures in next few months,” said Abid Saleem, an analyst.

The country spent over $12 billion on oil import which had drastically imbalanced the forex account.

The oil bill was 71 per cent higher than the previous year’s $7 billion.

Analysts said if the import of food products were not brought under control through higher local production, it would again inflate the import bill.

The government had to spend $800 million on wheat import despite the fact that the country produced sufficient quantity of the commodity.

The services export witnessed sharp decline while its import was much higher adding more weight to import bills.

“The July current account deficit is still lower than monthly average deficit of last year which came around $1.17 billion,” said the analyst. The total current account deficit for 2007-08 was $14.036 billion.

The trade deficit of over $20 billion in 2007-08 was one of the major reasons for the high current account deficit.

“The erosion of foreign exchange reserves and massive outflow of portfolio investment put enormous pressure on the rupee which has lost almost 20 per cent against the dollar this year,” said another analyst.

Analysts believe that the current account deficit will rise in coming months despite lower oil import bills.