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Current account deficit rises to $3.7 billion

June 19, 2012


KARACHI, June 18: Pakistan’s current account deficit rose to $3.770 billion during the last 11 months of the current fiscal year.

It caused problems for the economy which is already under pressure due to falling foreign exchange reserves and rising fiscal deficit.

The deficit is rising each month and in May, there was a deficit of more than half a billion.

If this trend persists in June, total deficit would certainly pass the deficit of fiscal year 2010 when it was negative at $3.946 billion. FY-11 was a lucky year for Pakistan as it ended with $214 million current account surplus.

The balance-sheet shows that despite inflow of over $12 billion remittances during this period, massive trade deficit negated the positive impact and was the real cause of imbalances.

During this period, balance of trade rose to negative $13.880 billion. Last year, it was minus $9.696 billion.

The trade imbalance increased by $4.184 billion compared to last year. Imports grew 13 per cent which were not very high, as during the same period of last year these were 15 per cent.

The negative growth of exports was seen as a real problem. Only last year, exports grew by 27 per cent during this period while this year, the growth was negative with 0.2 per cent.

Economic managers argue that inflow was negligible during this period and it was due to unfavourable relations with countries, like US.

At the same time, deteriorating law and order situation, including severe problem of electricity, kept the foreign investors at bay and foreign direct investment fell by 48 per cent. The amount was slightly higher than half a billion.

Trade imbalance and falling forex reserves have already put exchange rates at high risk as the local currency is losing ground against the dollar.

During the last one month period, local currency lost 3.5 per cent value against the greenback.

Both importers and exporters (who use imported ingredients for exports) found it difficult to compete in the global market with added cost of production that could be another debacle for the current account.

The biggest support, so far, is the remittances sent by overseas Pakistanis which could be more than $13 billion by the end of the current fiscal year.

Remittances are increasing on average 20 per cent each year, but the government is yet to assess if these would continue to increase.

In 2008, the economy was worst victim of current account deficit which forced the government to deal with the IMF.

It seems that the country is again heading towards the same situation, particularly in the absence of IMF loan, falling foreign exchange reserves, fast shrinking foreign investment and high speed of investment withdrawal.

Many sectors, like telecommunications, witnessed heavy withdrawal this year.