KARACHI: The current account deficit increased 90.7 per cent year-on-year to $6.43 billion in the first five months of 2017-18.

Pakistan witnessed a record current account deficit of $12bn in the last fiscal year. But the trend in recent months shows the deficit is likely to surpass that of 2016-17.

The State Bank of Pakistan (SBP) reported on Wednesday the current account deficit for July-November grew by $3.06bn over a gap of $3.37bn recorded a year ago.

The SBP governor recently expressed concerns about the increasing financing gap that could force the government to approach either commercial markets or the International Monetary Fund (IMF) to improve foreign exchange reserves.

Pakistan recently raised $2.5bn from commercial markets through the auction of international bonds.

Exports during the five-month period increased by 12pc or $1bn. But imports in the same months jumped by 23.4pc or $4.15bn. Rising imports did not reflect the impact of the regularity duty that the government imposed recently on a number of foreign items to cut the import bill.

The move was widely criticised by importers who claimed that the duty was imposed on imported raw materials instead of luxury items.

In the first quarter of 2017-18, the average monthly current account deficit was $1.23bn, which increased to $1.36bn for October and November. This indicates the deficit is increasing each month.

The government has been struggling to improve exports by providing exporters with incentives and depreciating the local currency. The rupee has depreciated by about 8pc since the beginning of the new fiscal year. Exporters were of the view that the 5pc depreciation that took place recently could result in increased exports in the next three months.

However, the sudden downward revision in just seven working days invited criticism from importers. They claimed it would be counterproductive because imported components of exportable products would make them costlier. But textile exporters said exports would benefit from the depreciation.

The trade imbalance in goods increased over $3bn during the five months. It reached $12.09bn compared to $8.99bn in the corresponding period in the last fiscal year.

In the absence of any significant growth in remittances, the current account deficit can hurt the country’s ability to meet foreign debt obligations as well as the exchange rate stability. The SBP said the market mechanism will determine the exchange rate going forward.

Published in Dawn, December 21st, 2017