30 August, 2014 / Ziqa'ad 3, 1435

Current account deficit up by 41pc

Published Jul 22, 2007 12:00am

KARACHI, July 21: Current Account deficit reached record high in the fiscal 2006-7 posing another challenge to the economic managers already under pressure for not doing enough to prop up the country’s exports.

The officials figures released by the State Bank on Saturday showed that the current account deficit touched a figure of $7.016 billion which is record high and much higher than the previous year.

Though the rate of trade growth - imports and exports - both remained lower than last year the current account deficit was 41 per cent higher. Last year, the current account deficit was $4.490 billion.

The government is in a comfortable position to meet the deficit as the inflows of foreign exchange through investments and remittances were also record high.

The foreign private investment during the year reached $6.95 billion, up 79.6 per cent from $3.87 billion last year. If the portfolio investment of 3.29 billion is included, the total foreign investment reached $8.41 billion, a jump of 87 per cent. The trade deficit further increased to show a gap of $13.54 billion during the last fiscal, which is about 13 per cent. The main reason for trade gap was the slow export growth, which is a serious concern for the country.

However, the massive oil import bill was another killing factor for the country’s forex reserves. The nation paid over $7.3 billion as oil bill during the said year. Petroleum experts world-over believe that the prices would go further high especially in the wake of Iraq war and the US tussle with Iran, both oil producing countries. Each country on the path of economic growth would pay more for oil imports and Pakistan, which spent 24 per cent of the total $30.86 billion import bill, might need more to pay as oil bill for current fiscal 2007-08.

In the wake of rising outflows through trade deficit the situation is alarming for the country as the government has started relying heavily on foreign investment and workers’ remittances to meet its ever- increasing current account deficit. Both these resources are unreliable as the country witnessed at the end of 1990s when nuclear test was conducted by Pakistan.

Analysts also pointed out that the government’s plan to sell some of big companies to extract dollars could face tough situation after higher expectation of the people with the judiciary in the wake of reinstatement of the Chief Justice.

For example privatising Pakistan State Oil or reselling of Pakistan Steel could not be a difficult task because of strong opposition by people in the country.

The services sector balance is another point of concern as the country has paid almost 100 per cent more than what it received from this sector. The balance of services sector during the same period was negative $4.125 billion. Pakistan received $4.125 billion for export of services while it paid $8.250 billion for import of services.

The recently announced trade policy set a trade gap of $12.8 billion with import bill of $32 billion and export receipts of $19.2 billion for the year 2007-08. The huge trade gap showed that the government was still relying upon the ‘unpredicted’ inflows of foreign investment and workers’ remittances.

“Higher trade gap means higher current account deficit. If gap increases further this year the current account deficit could reach $8.5 to $9 billion by the end of the year,” said an analyst.


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