• Monday, August 19, 2019

Current account deficit contracts 32% to $13.59b

Discussion in 'Pakistan Economy' started by Shahzaz ud din, Jul 18, 2019.

  1. Shahzaz ud din

    Shahzaz ud din SENIOR MEMBER

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    Current account deficit contracts 32% to $13.59b
    By Salman Siddiqui
    Published: July 18, 2019
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    CREATIVE COMMONS

    KARACHI: Pakistan’s current account deficit narrowed 32% to $13.59 billion in the fiscal year ended June 30, 2019 mainly due to a notable growth in inflow of worker remittances and reduction in import of goods and services.

    However, the country failed to achieve the deficit target both in relation to the country’s gross domestic product (GDP) and in total amount.

    The deficit came in at 4.8% of GDP worth $283.9 billion compared to the target of 4% for FY19. In terms of total amount, the government had targeted to restrict the deficit to $13.3 billion, according to the Planning Commission.

    “The current account deficit has dropped but it still remains elevated,” Arif Habib Limited Head of Research Samiullah Tariq said while talking to The Express Tribune.

    “This is unsustainable,” he said. “If it remains elevated in the current fiscal year as well, it will keep mounting the pressure on the rupee (against the dollar).”

    The deficit beat the target mainly due to the disappointing export of goods, which slipped to $24.21 billion against expectation for around $28 billion, after the central bank let the rupee depreciate 32% to Rs160.05 against the US dollar in FY19.

    In remarks made in the past few days, State Bank of Pakistan (SBP) Governor Reza Baqir said depreciation of the rupee and hike in key interest rate had helped in contraction of twin deficits – the current account and fiscal deficits – significantly.

    “The current account deficit has dropped to $1 billion a month (in FY19) compared to $2 billion a month last year,” he said. Exports have improved in volumes but not in value. “Textile exports have (alone) increased around 30%,” he said.

    [​IMG]

    “The current account deficit has remained in the economy due to increase in international petroleum oil prices in recent months,” he added. “Non-oil current account deficit has reduced to almost zero,” Baqir said.

    Pakistan has remained a net oil importing country to meet domestic requirement. Oil imports come to around one-fourth of the total import bill of goods valuing at $52.43 billion in FY19.

    The central bank data suggested that the authorities concerned had revised up the current account deficit for the prior fiscal year 2017-18 twice during FY19. They revised up the deficit by a cumulative $1.9 billion to a record high at $19.89 billion for FY18 compared to around $18 billion provisionally reported in July 2018.

    “The deficit was revised upwards after the government adjusted import numbers related to the China-Pakistan Economic Corridor (CPEC),” said the head of research of Arif Habib Limited.

    He said growth in exports was a must to push down the current account deficit to the target of $8.5 billion for the current fiscal year, which started on July 1, 2019.

    Besides, the country had to extensively work on finding import substitutes and achieving energy efficiency to further cut imports in the current fiscal year, he said.

    Current account deficit shrinks 29% to $12.68b

    The export of goods slipped 2.22% to $24.21 billion in FY19 compared to $24.77 billion in the preceding year, the SBP reported.

    The inflow of remittances from overseas workers increased around 10% to $21.84 billion in FY19 compared to $19.91 billion last year.

    The import of goods decreased 7.34% to $52.44 billion compared to $56.59 billion in FY18. Import of services shrank 16% to $9.55 billion compared to $11.36 billion in FY18.

    The higher current account deficit was partially financed through the country’s foreign currency reserves. Accordingly, they persistently remained insufficient, especially in the past one year, despite borrowing $9.7 billion from friendly countries including China, Saudi Arabia, the United Arab Emirates and Qatar and receipt of the International Monetary Fund’s (IMF) first loan tranche of $991.4 million during the year.

    Published in The Express Tribune, July 18th, 2019.

    Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
     
  2. Shahzaz ud din

    Shahzaz ud din SENIOR MEMBER

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    Govt’s Current Account Deficit Reduction in FY19 Was More Than the IMF Bailout Package
    [​IMG]


    The current account deficit has recorded a massive reduction of $6.3 billion in the closing financial year 2018-19 mainly due to the gradual control over imports and an increase in the inflows of remittances throughout the year.

    According to the data released by State Bank of Pakistan (SBP), the current account deficit reduced from $19.89 billion to $13.58 billion.

    The reduction in current account deficit value, is more than the $6 billion bailout package signed with International Monetary Fund (IMF) however the incumbent government missed the highly ambitious target to contain the deficit to $6 billion.

    The government took strict measures to improve the ballooning deficit over the period while it did succeed to a great extent, it will likely reap benefits to the economy in the current financial year as well.

    The imports of luxury items were reduced through high regulatory duties by the government. The government tightened the policy of imports on luxury cars and use of banking services such as credit cars for international transactions.

    The overall imports of goods and services saw a drop of over $6 billion which made a difference in the balance sheet of the country. Disappointingly, exports of goods and services did not show any growth in FY19, which is a major concern for the economy.

    On the other hand, the government also introduced incentivized services for expatriates supporting remittances to Pakistan, which bode well as the remittances from various countries recorded an all-time high of over $21 billion in FY19.

    What’s Next?
    The government is taking all possible measures to curtail the imports bills and the imbalance for the payments. Some of the measures will reap the benefit to the economy in the coming years.

    The deferred payment facility signed with Saudi Arabia’s government is one of the factors to reduce the deficit. Besides, the currency swap agreement with China may also help the government in reducing the deficit as well. The exports might perform well in the next few years supported by the measures of the government and the remittance inflows will improve further to narrow down the deficit.

    These factors will collectively help improve the balance of payment situation of the country and the target to reduce it to $6 billion might be attained by next year.
     
  3. Wikki019

    Wikki019 FULL MEMBER

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    Kia bany ga is mulk ka
     
  4. AZ1

    AZ1 SENIOR MEMBER

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    That is good but we still have a long way to go. Remittance is the only fast way to reduce the deficit in short time. I think govt should something extra to those who bring remittance in country so that they send more who are not using banking channel. Export may increase next year as we will have sufficient energy In Shaa ALLAH to run textiles in 3 shifts rather than 1 due to shortage of energy.
     
  5. Verve

    Verve ELITE MEMBER

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    Heading in the right direction. This is mere foundation work which takes the longest.
     
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  6. AUz

    AUz ELITE MEMBER

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    Our trade gap is still way too large.

    Hopefully govt’s effort for long term reform bring some positive changes. Pakistan still imports luxury items like Nutella. Seriously, wtf? All such needless items should be banned immediately!

    Exports need to rise and imports need to go down (other than productive imports on which Pakistan relies like machinery, tools, advanced construction materials etc).
     
  7. volatile

    volatile SENIOR MEMBER

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    Lol two key points ,
    Exports are down (bad) , imports are down (good & bad) as LSM shrinks to 3% and GDP shrinks from 335 Billion US$ to 275 Billion US$ . FDI drops so no more projects will be done ,Inflation highest with 13% ,Bank financing rates are 13.5% ,Local spending are dropping .the above news is good for IMF but not for local prospective. We are continuously spending on non development projects .
     
  8. Wikki019

    Wikki019 FULL MEMBER

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    The Thing is where is ease of buisness khan promised and where is FDI? and new Investments? he promised all this and it Looks like he is losing the touch now.
     
  9. Muhammad Omar

    Muhammad Omar ELITE MEMBER

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    While Exports declined by 11%
    FDI drops by 50%
     
  10. VCheng

    VCheng ELITE MEMBER

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    Patience. PMIK still has the remainder of his term to deliver the results he has promised to the nation.
     
  11. incognito1000

    incognito1000 FULL MEMBER

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    • Quantity of exports are increasing, rupee devaluation has helped.
    • You don't have the money to pay the current account deficit, so imports going down right now is only a good thing
    • GDP shrink is to be expected. You were growing due to infrastructure projects based off of loans that further increased Pakistan debt ratio. That also helped skyrocket your import bill as machinery & equipment was imported. Now, that phase is over, the GDP will decrease, projects will decrease, and since the bulk of your FDI was coming from CPEC, Chinese FDI has decreased. This is normal, even in countries like US or China, where economic stimulus packages come in the form of infrastructure spending. GDP gets a boost, but it's only temporary as once construction project is over, jobs come to end.
    • Much of these infrastructure projects were useless, for example Lahore Metro. It is politically motivated. That money would be better spent on re-building railways throughout the country to improve connectivity to ports & better facilitate freight movement. You could have used $2-3 billion spent on Lahore Metro to provide free education to millions, sponsor scholarships to universities and build a knowledge-based economy. But no, instead PML-N had to build a freaking Lahore Metro which most can't even use.
    • Once the FBR under Shabbar Zaidi succeeds in documenting the "black economy", you will probably find a small boost to economic indicators.
    • Inflation happens everywhere and has happened in rule of Zardari & Nawaz Sharif
    • Of course, local spending will decrease - temporarily. Someone may not want to purchase nice car or mobile phone to avoid tax net, right now. Eventually, they won't be able to resist, will purchase, and fall under the tax net. Imran Khan is doing a good thing that all countries must do, he is enforcing taxation. Just take a look at what Modi did by discontinuing circulation of certain notes in India - the goal is to move everyone towards cashless, documented society. This in the long, run will be good for Pakistan as it will have more taxation revenue, and it will be good for Pakistan people - for example, no one will be able to steal your plot/house because everything will documented digitally.
    • Pakistan is spending on non-development projects like paying back loans because that debt is finally maturing, unlike in the previous governments when it wasn't maturing. PPP & PML-N had the luxury of borrowing money and not having to pay back in their term. PTI government just retired almost $10 billion dollars of debt.
    Please watch below:
     
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  12. Type59

    Type59 FULL MEMBER

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    Ik could easily borrow billions and go on spending spree on infrastructure. Pump up the gdp numbers. Short term gain, long term pain.
     
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  13. Hakikat ve Hikmet

    Hakikat ve Hikmet SENIOR MEMBER

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    Pak’s rate of recovery and redemption is directly proportional to the rate at which she destroys the “Last Mujibs”....
     
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  14. volatile

    volatile SENIOR MEMBER

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    Put non development expenses as well in above equation as well ,if you speak truth should be complete one

    There is no vision and policy only facilitation of people who are beneficiaries of this fascistic regime
     
  15. Mrc

    Mrc ELITE MEMBER

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    Imran Khan shud eat n sleep exports...

    He shud go head on .. Thats the solution