Current account deficit surges to 4.7pc of GDP

Published November 20, 2021
In terms of dollars, the current account deficit increased by $1.663bn in October, while the deficit for the first four months (July-October) of the current financial year rose to $5.084bn. — Reuters/File
In terms of dollars, the current account deficit increased by $1.663bn in October, while the deficit for the first four months (July-October) of the current financial year rose to $5.084bn. — Reuters/File

KARACHI: The current account deficit has widened by $1.6 billion in October.

The data issued by the State Bank of Pakistan (SBP) on Friday showed the current account deficit was higher than September while it continued to increase its size in terms of GDP from 4.1 per cent to 4.7pc.

The deficit has already gone much beyond the target which was in the range of 2-3pc of GDP for the entire current financial year.

The increasing deficit has a vast negative impact on foreign exchange reserves and exchange rate regime which has resulted in the depreciation of rupee by 13.4pc during the current financial year.

The gap has already crossed the targeted level

In terms of dollars, the current account deficit increased by $1.663bn in October, while the deficit for the first four months (July-October) of the current financial year rose to $5.084bn.

The real reason behind the current account deficit is the growing size of imports.

According to the SBP data, the imports in July-October went up by 66.3pc to $23.484bn against $14.118bn recorded in the same period of FY21.

The deficit on balance in goods and services during this period was $14.845bn compared to $7.546bn of same months of the previous financial year.

The imports of goods in October went higher by $6bn reflecting the failure of policy measures taken by the central bank and the government.

The first quarter result had already reflected the trend for trade and current account deficit as it rose to 4.1pc of GDP.

The increasing current account deficit resulted in the pressure on exchange rate as the local currency lost 13.4pc against the US dollar during FY22.

The government had succeeded in reducing the current account deficit from $20bn in FY18 to $1.9bn in FY21 but the growing size of the recent deficit could be in the range of about $10bn provided the current situation persists for the rest of the financial year.

The current account deficit in September was $1.113bn compared to $1.473bn in August. The decline in September was encouraging for the government but the deficit in October further went up by $1.66bn.

The foreign exchange reserves of the SBP declined since October 1 by over $2.2bn to $16.9bn reflecting the poor reserves situation.

The county has yet not received the promised $3bn from Saudi Arabia, while the International Monetary Fund has yet to finalise the negotiations for the resumption of loans.

The situation is not in favour of exchange rate and the balance of payments.

Published in Dawn, November 20th, 2021

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