KARACHI: The country’s current account deficit widened by 16.4 per cent during July FY19 as compared to the corresponding period of last year.

According to the State Bank of Pakistan, current account deficit rose to $2.2 billion in July 2018-19 versus $1.932bn last year – an increase of $268 million.

The growing current account deficit presents the new government with its biggest and most immediate challenge since it is directly responsible for draining the country’s foreign exchange reserves to near critical levels. In 2017-18, the country’s current account deficit was $18bn, representing a loss of almost $1.2bn per month for the reserves.

This news comes after positive reports on the external account in July as remittances reported a spike and the growth of trade deficit flattened out, raising hopes that pressures on the external front might be subsiding. But those were tempered by the latest data on the current account deficit, which continues to grow despite efforts by the previous government to encourage exports and contain imports.

The import bill rose by 20pc to $5.566bn in July, from $4.644bn in the same month of previous fiscal year. Exports kept their growth steady as they increased by 10.3pc to $2.009bn, compared to $1.821bn in FY18. In fact, the exports stood at just 36pc of the imports bill.

The change in exports and imports of services during July showed modest changes as imports edged up to $903m from $890m while exports slipped to $405m from $411m last year.

The newly appointed finance minister earlier said that the government has not ruled out approaching the International Monetary Fund for a bailout package since the current account deficit and debt servicing have left few options.

He said the country needs $2bn each month to meet its obligations. The new prime minister has also promised to wean the country off its reliance on external loans as a means of balancing its external account.

According to another State Bank report issued recently, the country had to pay $7.479bn as debt servicing in FY18. It was slightly lower than the amount of $8.147bn paid in FY17 but the size of debt servicing is highly critical for the country facing an acute shortage of reserves.

However, the details showed that the amount of interest has been increasing while the principal has decreased during the past two years. The interest amount rose by 41pc in FY18 to $2.293bn from $1.625bn in FY16.

Similarly, the amount of principal fell by 20pc to $5.186bn in FY18, which is a negative sign for an economy struggling to reduce its debts.

Published in Dawn, August 21st, 2018