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KARACHI, Oct 7: Pakistan saw an overall balance of payments deficit of $788 million in July-August this year, according to data released by the State Bank. In a year-ago period, the country had seen a BOP surplus of $375 million.
The BOP turned negative as the current account surplus nose dived to $41 million in the first two months of this fiscal year from $869 million a year earlier, and the financial account deficit expanded to $1.172 billion from $571 million.
The dramatic fall in current account surplus, caused primarily by a huge trade deficit of $527 million, explains why the rupee lost 63 paisa or about 1.1 per cent value against the dollar in July-August 2004.
As the trade deficit expanded further to $839 million in July-September 2004, the loss in the rupee value also increased to 112 paisa or 1.9 per cent. Balance of payments statement for July-September 2004 would be released next month. But given the fact that the trade deficit increased by $312 million (based on fob prices of imports and exports) in September, the BOP deficit is also likely to expand.
But it is difficult to estimate it at this stage because data on workers' remittances, FDI and other inflows in the last month are not currently available. Similarly, data on outflows through several other sources, except for imports, are also not known.
If the inflows of workers' remittances or foreign exchange sent back home by overseas Pakistanis show a rising trend in September, as they did in July and August 2004, this would reduce the likely quantum of the BOP deficit.
The BOP statement for July-August 2004 show that workers' remittances rose by 14 per cent to $670 million. The same applies on foreign direct investment or FDI. If FDI inflows in September continue to show a rising trend, as they did in July-August 2004, this again would impact favourably on the BOP.
In the first two months of this fiscal year, FDI shot up by 47 per cent to $109 million. A $300 million World Bank's Poverty Reduction Support Credit received last month should also help in containing the BOP deficit.
THE RUPEE: The US dollar on Thursday flew past the psychologically important level of Rs59.40 but closed at this very level towards the end of trading hours in the inter-bank market.
Bankers said the US unit was seen trading briefly even above Rs59.40 but the central bank made no obvious intervention to keep the local currency stable. This left the market players guessing about the new level at which the SBP would defend the rupee.
The SBP let the dollar rise past Rs59 level on September 20, after keeping it below this level, despite severe buying pressure seen since the start of the new fiscal year on July 1. But it then kept the dollar range bound between Rs59.20-Rs59.40 through well-timed but small interventions.
"We don't know at what level SBP would again provide comfort to local currency but most probably it not let it fall below 59.50 a dollar," said treasurer of a big private bank. Opinions are divided on this subject. Some bankers say the SBP may allow rupee touch 59.60 a dollar mark.
Though the central bank has a strong $10 billion plus foreign exchange reserves it may not intervene too often in the foreign exchange market for a couple of reasons, sources close to SBP said.
"First, the central bank not only wants to keep the reserves intact, it also wants to see them rising," said one of the sources. Secondly, it has realised that intervening in the market at a time when the dollar demand is reaching new heights everyday would prove counter-productive-i.e. the market would absorb the dollar selling by the central bank and the dollar would still rise.
This would set in motion a self-fulfilling prophecy cycle wherein the market would start behaving in anticipation that the dollar would keep rising despite interventions and that would further increase dollar demand, thus facilitating the US unit gain further.
Another reason for which the central bank does not want to make frequent and strong interventions in the foreign exchange market is that it wants to allow a gradual fall in the rupee value to help exporters remain competitive. The Thursday fall of 4 paisa in the rupee value raises to 15 paisa the total loss the rupee has seen so far during this month.
