KARACHI: The current account deficit surpassed the last year’s amount despite higher remittances, large savings on oil import bills and less repayment of external debt during the first 11 months of the current fiscal year.

The State Bank of Pakistan reported on Tuesday that the current account deficit stood at $2.486 billion during July-May 2015-16 compared to $2.457bn during the same period of the last fiscal year.

The deficit stood at $792 million in May alone, the highest in a single month of this fiscal year.

The current account is the broadest measure of trade, covering not only the flow of goods and services but also investment flows. A deficit reflects a country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up this deficit.

During July-May 2015-16, the trade deficit during the period remained around $18.6bn compared to $18.215bn a year ago.

One of the major reasons was the poor inflows of foreign direct investment of $1bn in the first 10 months (July to April) of this fiscal year.

However, the remittances being sent by the overseas Pakistanis reached close to $18 billion in July-May 2015-16. The huge amount fills the massive trade gap each year. This year the growth in remittances moderated to six per cent from over 17pc in the previous fiscal year.

Pakistan’s exports failure did not allow the country to get benefit from the extraordinary foreign exchange support of $18bn in the 11 months.

As compared to the last year, the country had to pay less for external debt servicing which also helped the balance sheet to improve. In the first three quarters of the current fiscal year, the government paid $4.2bn in debt servicing while for the entire fiscal FY15, the country paid $7bn.

Foreign exchange reserves would remain a highly sensitive question for the government which has succeeded to increase the reserves to record level of over $21.4bn, but has failed to reduce the current account deficit.

In the upcoming fiscal year, the government has planned to raise about $8bn through external sources, including loans. Further loans from the international market means more repayments for the debt servicing.

Media reports suggest that the government was planning to approach the International Monetary Fund (IMF) for another loan agreement. However, the government says it was trying to get rid of the Fund.

Pakistan is expected to receive the last tranche in September under the ongoing agreement with the IMF.

Published in Dawn, June 22nd, 2016