KARACHI, June 20: The current account deficit of the country has broken all records as it hit almost $13 billion in 11 months, indicating that more is to come at the end of the current fiscal.

The government in its budget for 2008-09 has set $13 billion as the current account deficit, but the trend shows that the target is highly optimistic as it happened this year.

The 11-month current account deficit ($12.957 billion) is equal to 7.5 per cent of the Gross Domestic Product (GDP) and is far ahead of the target of 4.8 per cent of the GDP. It is higher than the country’s total foreign exchange reserves and 81 per cent higher than the current account deficit during the corresponding period of last year.

“It all shows that current account deficit has taken the central position amid economic woes of the country which is a threat as well as challenge at the same time,” said an analyst.

The government did not spell out any strategy to deal with this external threat with soaring current account deficit.

Even for the next budget, the government decided to remain silent about its strategy to finance the huge current account deficit projected at $13 billion for next year.

Analysts and economists assume that the government would rely on massive borrowing to finance the increasing external deficit.

The current fiscal year witnessed poor foreign investment, especially portfolio investment, which deteriorated the health of the economy. The outflow of foreign exchange was much higher than the expectations which hampered the exchange rate and the rupee dipped sharply against the US dollar.

The foreign direct investment declined to some extent, but the massive outflow from portfolio investment caused a serious problem for the government to finance the current account deficit.

However, the support of overseas Pakistanis who remitted 18 per cent higher foreign exchange in the first 11 months of 2007-08 helped the government to minimise the intensity of rising current account deficit.

“The current fiscal year did not get support of privatisation which may help next year to generate foreign exchange to make a temporary arrangement for tackling the current account deficit,” said the analyst.

Analysts were of the view that the situation was not in favour of launching of Global Depository Receipts (GDRs) during the current fiscal year and it may be different next year.

They said the country faced serious political uncertainty which damaged its reputation abroad as “sustainable economy with stable political system.”

The government can opt to float GDRs of public sector companies and could target up to $1.5 billion for 2008-09.

The analysts said that the government has taken an initiative to reduce the threat of rising current account deficit by making an arrangement to receive up to $3.5 billion from friendly countries and other donors.

The latest development which tells the story of Saudi oil supply at deferred payment would further strengthen country’s external account.

“The State Bank had accounted that $3.5 billion would come before the end of the current fiscal year, but it looks impossible now. The Saudi oil supply will remain doubtful till it is started,” said the analyst.