KARACHI: The current account deficit in the first five months was four times higher than the deficits recorded during the same period of last year, the State Bank reported on Friday.
The latest data suggests that the country is going to face deeper than expected threat on the external front since the hope for improvement in imbalances has no weight.
The deficit of five-months was $2.104 billion compared to the deficit of $589 million noted during the corresponding period of previous year.
The deficit in November was much higher than October, showing a rising trend, reflecting the dryness of dollar inflows.
The November deficit was $478 million against an October deficit of $287 million.
Analysts said there are two main reasons for this rising current account deficits, first higher trade deficit and secondlyshrinking foreign inflows, excluding remittances being sent by overseas Pakistanis.
They said the third element would take bigger shape with the start of payback of IMF loans.
Pakistan was hopeful of another IMF loan package when the previous remained incomplete, but the IMF refused.
It was also observed that the IMF was not in a position to offer loans to countries, like Pakistan, particularly when stakeholders are in trouble.
The entire European Union is in hot waters and is expecting aid from IMF to bail out the crisis-ridden European economies.
The IMF’s total fund is about $400 billion which not enough to bail out European economies, but it could share with otherstrong European economies trying to overcome the crisis.
Analysts believe that the IMF would not even rollover loans, Pakistan has received since 2008, a sum of $8.9 billion till June 2011. Pakistan signed the agreement to avoid a default due to huge current account deficits and the IMF provided loans,particularly for strengthening the current account.
The five-month trade deficit, a real threat, was 38 per cent more than the performance of last year.
During this period, the trade deficit was $6.424 billion. If it continues with the same pace, the FY-12 would end with a trade deficit of around $13-$14 billion. This massive deficit would certainly erode the entire foreign exchange reserves of thecountry and widen the current account deficit to non-reparable level.
The impact of higher trade deficit is already visible in the exchange rate where importers see more demand for US dollars at much higher prices.
“Cost of political uncertainties in domestic and external fronts is much more than the losses in trade and current account deficits,” said Aamir Aziz, a textile goods manufacturer and exporter.
The worried exporter said that every disorder in trade and business was getting influenced by these uncertainties.
The State Bank also reported that the current account deficit to GDP (gross domestic product) ratio rose 2.4 per cent during the first five months of this fiscal year. It was 2.1 per cent last year but economy improved in second half and FY-11 ended with current account surplus.