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KARACHI, May 31: The State Bank of Pakistan said on Saturday that the deterioration in overall balance of payments accelerated during the July-April period of 2007-08.
The SBP in its third quarterly report said on the one hand, the current account deficit continued to expand while on the other, financial and capital account surplus shrank. Consequently, the country’s foreign exchange reserves fell to $11.5 billion and the rupee depreciated by 13.4 per cent against the US dollar by May 22.
The report said a large part of the deterioration in current account deficit emanated from November 2007 onwards on account of substantial increase in import bill. The rise in import bill, in turn, was driven by both high prices and demand factors, with former having the greater role. The rise in import bill was accompanied with rising freight charges which together overshadowed improvement in export growth and impressive increase in current transfers in the period under review, it said.
The financial and capital account surplus declined during July-April FY08, mainly due to substantial fall in foreign portfolio investment, which resulted due to outflow from stock market, and delay in floatation of Global Depository Receipts and issuance of Eurobonds, it said.
Trade deficit
The SBP said the trade deficit during July-April was fueled by a very strong surge in imports as well as below-target export growth.
It said the deficit widened to a record high of $16.8 billion, which is 37.8 per cent higher than the annual trade deficit target.
While the 10.2 per cent YoY export growth during the July-April FY08 was an improvement over the previous year, it was nonetheless significantly lower than the 12.4 per cent growth targeted for the period, the report said.
It said the surge in imports was caused by both higher aggregate demand and rising international commodity prices. Growth in exports on the other hand was led by non-textiles, while textile exports registered a fall, the SBP said.
Government borrowings
The SBP said that the government domestic borrowing grew strongly, reflecting a strong year-on-year increase in the deficit, and little change in external financing from FY07. Thus, with net retirements of borrowings from commercial banks and only Rs1.7 billion in privatisation proceeds (against Rs75 billion budgeted for FY08), the government borrowings from the central bank continued to rise sharply.
The report said incremental government borrowings from the central bank as of May 10, 2008 had reached Rs551.0 billion, pushing the outstanding stock of treasury bills with the SBP to Rs940.6 billion. This development has significantly augmented inflationary pressures in the economy, and raised risks to macroeconomic stability.
The SBP said after a sharp rise of 6.4 per cent in second quarter, the growth in the domestic debt moderated to 5.5 per cent in Q3-FY08. Although, government availed substantial financing from the SBP in this quarter, growth in floating debt decelerated due to significant retirements by the commercial banks, resulting in a moderation in debt growth during Q3-FY08, it added.
