C/A deficit swells to $4.517bn in FY12

Published Jul 18, 2012 02:19am

“Moody’s downgrade of Pakistan’s local currency and foreign bonds have shaken the market confidence over the improvement in the relations with the US and Pakistan,” said currency expert Atif Ahmed. - File photo

 

KARACHI: Pakistan’s current account deficit rose to $4.517 billion in 2011-12, compared with a surplus of $214 million in the previous fiscal year, the State Bank of Pakistan reported on Tuesday.

The deficit, which is 1.9 per cent of gross domestic product, was higher than the government’s expectations and analysts said the deficit is likely to further widen in 2012-13 mainly due to a large trade deficit which surged to $18.394 billion in the outgoing fiscal year.

The current account was under pressure in the first half of 2011-12 due to an increase in international oil prices coupled with a deteriorating economic outlook, political instability and worsening relations with the United States.

Even though global oil prices receded in the second half of the 2011-12 fiscal year, the current account deficit widened due to greater trade imbalances following a below than expectation growth in the country’s exports.

Pakistan’s growth in exports fell by 2.8 per cent in 2011-12, compared with the previous year.

Analysts said Pakistan could face a larger current account deficit due to a fall in cotton prices in the global market as the textile industry contributes to about 60 per cent of the country’s total exports.

The widening of the trade deficit and current account deficit, along with depleting foreign exchange reserves and meager foreign investment put pressure on the exchange rate, as the rupee lost 9 per cent against the US dollar in 2011-12.

On the positive front, analysts are cautiously hopeful on improving relations of Pakistan with the US after the resumption of Nato supplies, which also helped stabilise the local currency for the previous 10 days.

“Moody’s downgrade of Pakistan’s local currency and foreign bonds have shaken the market confidence over the improvement in the relations with the US and Pakistan,” said currency expert Atif Ahmed.

“I believe the local currency could face another jolt amid lack of foreign inflows.”

Last week, Moody’s Investors Service downgraded Pakistan’s foreign and local currency bond ratings by one notch to Caa1 from B, with a negative outlook citing the main concern to be an increased strain on the country’s external payment position following a rise in trade deficit and a decline in capital outflows.

Pakistan is also due to repay the International Monetary Fund over $3 billion in 2012-13.


Do you have information you wish to share with Dawn.com? You can email our News Desk to share news tips, reports and general feedback. You can also email the Blog Desk if you have an opinion or narrative to share, or reach out to the Special Projects Desk to send us your Photos, or Videos.

More From This Section

Comments (0) Closed