KARACHI, Aug 11: Pakistan’s current account showed a deficit of $1.526 billion in the last fiscal year ended in June 2005, according to data released by the State Bank.

The current account surpluses seen in the earlier years became history in FY05, as the country saw a huge trade deficit of $4.523 billion -— and that in turn contributed to a current account deficit of $1.526 billion. In FY04, Pakistan had recorded a current account surplus of $1.811 billion as its trade deficit was no more than $1.279 billion.

The figures for trade deficits of the past two fiscal years have been arrived at by subtracting the free-on-board or fob value of exports from fob value of imports, and as such they do not match with the customs based value of imports, exports and trade deficits.

The SBP data show that imports (at fob value) totalled $18.973 billion in the outgoing fiscal year, whereas exports (also at fob value) totalled $14.450 billion. Hence, the trade deficit stood at $4.523 billion.

Pakistan’s economic managers say the current account deficit seen in the last fiscal year was the inevitable outcome of a faster-than-targeted economic growth. The economy grew 8.4 per cent, beating the initial forecast of 6.6 per cent. But this faster growth left in its trail a current account deficit of $1.526 billion against a surplus of $1.811 billion in FY04 and a higher inflation of 9.28 per cent against 4.57 per cent in FY04. Economists continue to debate if the price-tag is worth the handsome economic growth or whether the country could have achieved the same growth with lesser current account deficit and a bit lower inflation.

The customs-based trade data released by the Federal Bureau of Statistics show that the import bill surged dramatically during the last fiscal year because of higher oil prices in the international market and larger oil consumption at home. The data also show that an increase in imports of machinery and prices of iron and steel in the world markets contributed heavily to a phenomenal growth in imports. Officials keep quoting these developments when they talk of trade deficit. They also cite these facts as a proof to their claim of robust economic activity in the country.

What they conveniently forget, however, is that Pakistan failed to increase its exports significantly despite the lifting of textiles quotas from January 1 this year. Businessmen say a host of factors, including lack of infrastructure, rising financial cost of business, high utility rates, etc., made it difficult for them to give exports a real big boost.

Based on fob values, Pakistan’s imports grew by more than 38 per cent to $18.973 billion in FY05 from $13.738 billion in FY04, but its exports rose by only 16 per cent to $14.450 billion from $12.459 billion.

The SBP data show that it was not only a huge trade deficit that resulted in the current account deficit in FY05. The services account deficit also had a hand in it. In FY05, Pakistan posted $3.317 billion services account deficit against that of $1.316 billion in FY04. This sharp increase in the services account deficit is also attributable, to some extent, to a faster-than-projected economic growth. But in the absence of item-wise break-up it is difficult to say how much of this deficit could have been contained.

The trade and services accounts deficit combined reached $7.840 billion in the last fiscal year against $2.595 billion in FY04. Pakistan also saw a deficit of $2.392 billion in FY05 against that of $2.207 billion in FY04. So, overall deficit on trade, services and income accounts combined soared to $10.232 billion in the last fiscal year from $4.802 billion a year ago.

This huge deficit on the three accounts combined completely wiped off $8.706bn net current transfers and resulted in a current account deficit of $1.526 billion. In FY04, trade, services and income accounts combined had posted a deficit of $4.802 billion, whereas net current transfers had reached at $6.613bn. That, in turn, had resulted in a current account surplus of $1.811 billion.

The SBP data show that in the net current transfers of $8.706 billion in FY05, the major contribution of $4.168 billion was that of foreign exchange sent back home by overseas Pakistanis. This was a 7.7 per cent higher than their FY04 remittances of $3.871 billion.

Senior bankers say Pakistan can attract much larger amounts of foreign exchange from overseas Pakistanis by reforming foreign exchange companies and by cracking down on hundi/havala operators.