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Current account deficit surges by 120pc

Updated Mar 21, 2017 09:43am


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KARACHI: Current account deficit widened by more than 120 per cent to $5.4 billion in July-Feb, the State Bank of Pakistan (SBP) reported on Monday.

Rising current account deficit puts the exchange rate under pressure and affects the country’s external sector. It shows the country is a net borrower from the rest of the world and uses foreign funds to meet its domestic requirements.

The deficit in trade amounted to $15.4bn in the first eight months of 2016-17, up 26.8pc from a year ago. The growing deficit is a result of rising imports — which went up 11.2pc — coupled with a decline in exports that dropped 2pc over the same period.

The current account deficit was 2.6pc as a percentage of GDP in July-Feb as opposed to 1.3pc during the same period in the preceding year.

Remittances from overseas Pakistanis shrank 2.5pc during the period under review. Low oil prices have forced oil-rich nations of the Middle East to curtail their fiscal spending. This has resulted in job losses and reduced disposable income for Pakistani expatriates in the Gulf region.

Remittances from Saudi Arabia, United Arab Emirates and United States declined 6.8pc, 1.6pc and 2.5pc, respectively, over the eight-month period.

Imports are rising partly because of the increased trade activity under the China-Pakistan Economic Corridor (CPEC). Imports under machinery, transport and petroleum groups in July-Feb rose 12pc, 38.6pc and 15.4pc, respectively.

At a recent press conference, SBP Governor Ashraf Mahmood Wathra downplayed concerns over the rise in imports since the beginning of 2016-17. He said imports included $6bn of capital goods, which would eventually help grow exports and reduce the trade deficit.

The SBP recently imposed a 100pc cash margin requirement to curtail the imports of non-essential items, such as mobile phones and consumer goods.

Banks now require importers of around 400 non-essential goods to furnish liquidity beforehand, which will reduce their imports that currently cost the country around $8.5bn a year.

The government has also announced a number of relief packages for export-oriented sectors like textile and clothing, but exports have continued their slide nonetheless. The latest in the series is a Rs180bn subsidy package for the textile, clothing, sports, surgical, leather and carpet sectors, which will remain effective until June 30, 2018.

According to the SBP, growing exports is going to be “somewhat more challenging” in view of the recent wave of anti-trade sentiment in the United States and European Union, which are Pakistan’s largest export destinations.

Citing a World Trade Organisation report, the SBP said that G20, a bloc of 20 advanced economies, applied 145 new trade-restrictive measures between October 2015 and May 2016. This came to an average of around 21 measures per month, which was the highest monthly average recorded since the beginning of the monitoring exercise in 2009.

Published in Dawn, March 21st, 2017


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Comments (33) Closed

viv Mar 21, 2017 08:29am

The results of having best "experienced" team and "best finance minister in south Asia"

M. Emad Mar 21, 2017 08:32am

Bangladesh 2015-16 Exports increased 8% to about $34bn.

GET real Mar 21, 2017 08:57am

Is CPEC part of the problem or part of the solution?

Everyone knows that a good part of CPEC is a loan. If the current burden is becoming unbearable, how can one sustain bigger burden in future.

No one knows what is under the bonnet. Since the govt is cagey about it, there must be a twist in the story govt is unwilling to tell the public.

Bravo Mar 21, 2017 08:55am

So what?? We have SIPIQ..we do not want exports..common people thinking...!!

Truth Mar 21, 2017 09:05am

Is this ballooning trade account deficit sign of economic tak-off, as being frequently claimed by the Govt, especially the Finanace Minister.

scientist Mar 21, 2017 09:06am

Don't worry CPEC is there no problem with "deficit"

Trade in balance Mar 21, 2017 09:06am

Declining export and increasing imports together with exploding population is a recipe for disaster. If it continues there will be huge consequences for Pakistan and it's neighbors.

GABBAR IS BACK Mar 21, 2017 09:31am

overseas pakistanis should be offered more incentives in pakistan. Its their money which is used to run Pakistan. Without their money Pakistanis inside Pakistan will die of hunger. Respect Overseas Pakistanis.

SID Mar 21, 2017 09:43am

Pakistan CAD ( current account deficit) is showing tremendous growth thanks to CPEC . Hail Sino-Pak friendship.

N K Ali Mar 21, 2017 10:05am

@GET real: CPEC is no problem, the REAL problem is in us and that means our planning for national benefits and development. How hard the GOP tried for the GSP Plus status and after getting it from Europe, what happened? Our exports are not going up but DOWN. Frivolous expenses, stupid projects and large scale borrowing the repayment of which is not supported by the economy. Have a nice day. Salams

Sameer Mar 21, 2017 10:26am

This article is a wake up call " It shows the country is a net borrower from the rest of the world and uses foreign funds to meet its domestic requirements." For heaven's sake; political interests that kill merit and promote nepotism must stop otherwise there wont be a system to save.

72v Mar 21, 2017 10:31am

Local goods are getting killed at faster imports have direct routes now. Please stop this.

Kunal Mar 21, 2017 10:31am

Only depends on CPEC.CAD rising is dangerous sign.

flipflop Mar 21, 2017 10:36am

This is only because there's no strong policy for business and commerce which in return costs us more.We put all our bets on CPEC, which to me is just an engine with no fuel to run.Our local infrastructure is too weak to support new businesses.The banking networks are shrinking and there are too many loopholes with in our regulation system giving room to insider trading.Pakistan is also facing a rising tax deficit as government has failed to collect several billion rupees for the year 2015-2016 which goes on to show that no matter how much you try to whiten the illegal money things will always go the other way u less we start cracking and filling these loopholes.All our policies are on paper only.This leadership has failed in more than 30 ways and they are continuing to add their blunders to this long list of failures. They are running a country like a business which in my opinion is the reason for failure.Our industries are shrinking at a faster pace along with the rising brain drain.

Nahrad Muni Mar 21, 2017 10:57am

Not a good sign. Hope it becomes normal.

asif Ali Mar 21, 2017 11:00am

"Trade deficit with China swells to $6.2bn"

Ashok Mar 21, 2017 11:16am

China is slowly turning everyone around into its Economic slave. This is not same as healthy business between 2 countries. In short China is trying to become US but it is lot worse than US.

Shakil Mar 21, 2017 12:23pm

@flipflop Too many taxes on bank accounts have scared away all businesses from depositing which has resulted in shortage of capital depressing the economy.

everyonewantspeach Mar 21, 2017 12:45pm

Pakistan, wake up before its too late. Concentrate on the export of goods and services and reduce your imports. CPEC cannot solve any problem unless manufacturing units in Pakistan are able to use the CPEC infrastructure to export goods. All the best. Love from India.

Faisal Mar 21, 2017 12:57pm

@M. Emad Dear, Bangladesh is a small country, no comparison with Pakistan.

ABE Mar 21, 2017 01:01pm

Bravo, PML-N. Ishaq Dar deserves a Noble Prize for Financial Mismanagement.

JUNAID Mar 21, 2017 01:46pm

@Faisal ...Bangladesh GDP for 2016 is around 256billion dollars while Pakistan should be not less than 275billion... with the respective populations at 160 million and 200 million, I must say Bangladesh economic performance is not bad...if they move in their current trajectory, their economy will be catching up with that of Pakistan in the next 4-5 years...

N.S Mar 21, 2017 01:49pm

@SID Imports are rising partly because of the increased trade activity under the China-Pakistan Economic Corridor (CPEC). Imports under machinery, transport and petroleum groups in July-Feb rose 12pc, 38.6pc and 15.4pc, respectively.

Initially imports will be ahead as lot of power plants machinery is imported as well. So this is a healthy sign, no consumer goods but more on capital goods...

N.S Mar 21, 2017 01:58pm

@JUNAID Bangladesh GDP $246.166 billion (nominal; 2017)[1] $686.162 billion (PPP; 2017)[1]

Pakistan GDP. $284 billion (nominal, 2016)[2] $988 billion (PPP, 2016) [3]

The difference is more in PPP term. But at the same time Bangladesh is doing really good. Pakistan need to increase its GDP per year growth. With the power crisis seems to be ending in late 2017 with additional 10,000 MW, there would be an increase in industrial activity.

Nawaz Mar 21, 2017 02:01pm

@Bravo - What the heck is 'SIPIQ'?

Either you need new reading glasses, or don't know what you are talking about, besides memory lapse. Little knowledge is a dangerous thing.

Bravo Mar 21, 2017 02:12pm

@N.S 8000MW dirty coal powered electricity... which will put additional costs on environment and health!

KHALID Mar 21, 2017 02:20pm

@GET real CPEC is a problem for Indians but not for Pakistani's. You need to read this "Imports are rising partly because of the increased trade activity under the China-Pakistan Economic Corridor (CPEC). Imports under machinery, transport and petroleum groups in July-Feb rose 12pc, 38.6pc and 15.4pc, respectively."

N.S Mar 21, 2017 02:27pm

@Bravo Not exactly, it would be a mix of RLNG, Hydel power, Nuclear(last month one plant was inaugurated 360 MW capacity, 3 more under construction 1100x2 MW near Karachi, 1000 MW at Chashma), Solar, small addition though, Wind power about 2000 MW projects on fast track with 600 MW already added.

Also coal power plants are mostly on imported coal with super critical Sulfur emission controls and extra high cooling and emission towers. Check the link below.

Ash20 Mar 21, 2017 02:50pm

This is just a start. Soon, CPEC repayment will start which will happen soon after 2018 elections. Mark my words, IMF will be coming in 2018 for new loans.

STHF Mar 21, 2017 03:05pm

@Faisal In that case it is a damn shame that the smaller Bangladesh exports goods & services worth $34 billion against $20 billion of Pakistan.

That is a very wide gap.

sabeeh ahmad Mar 21, 2017 03:58pm

The best team performance is visible now......

SHIVA Mar 21, 2017 04:11pm

@KHALID Live in that dream world and never wake up.

adi Mar 23, 2017 06:51am

@Faisal your comparison..they are saner.