2014-15: Current account deficit shrinks by $850m

[Muhammad Omar]

CSF, worker remittances and reduction in oil import bill labelled as reasons. STOCK IMAGE


KARACHI: Pakistan’s current account deficit in 2014-15 remained $2.28 billion, according to data released by the State Bank of Pakistan (SBP) on Wednesday.

The current account deficit shrank by $850 million in July-June compared to the preceding fiscal year when it amounted to $3.13 billion. The notable improvement in current account in the last fiscal year was recorded primarily during the third quarter (Jan-Mar) when it posted a substantial surplus of $730 million.

According to SBP analysts, the surplus in the current account in Jan-Mar was a result of three factors: an inflow of $717 million in February under the Coalition Support Fund (CSF), a year-on-year increase of 15% in workers’ remittances and a sharp reduction in the oil import bill, which reduced the trade deficit by 19.2% in the quarter on a year-on-year basis.

A deficit or surplus reflects whether a country is a net borrower or lender of capital with respect to the rest of the world.

Current account breakdown

As a percentage of the gross domestic product (GDP), the current account deficit decreased from 1.3% in 2013-14 to 0.8% in 2014-15.

In the last quarter of 2014-15 alone, the current account balance remained in deficit: it amounted to -$593 million in Apr-June as opposed to a current account surplus of $730 million in the preceding quarter.

The notable change in the current account balance over the quarter is partly because of a significant increase in the value of goods imported as well as a sharp decrease in the exports of services.

On a quarter-on-quarter basis, the value of goods imported increased to $10.1 billion in Apr-Jun. From imports of goods valuing almost $9 billion in Jan-Mar, the quarter-on-quarter increase remained approximately 13% in Apr-Jun.

Pakistan’s total imports of goods in 2014-15 were $41.1 billion as opposed to $41.6 billion in the preceding fiscal year, which means an annual decrease of 1.2%.

Pakistan exported goods worth over $24.1 billion in 2014-15 as opposed to the exports of goods valuing over $25 billion in the year before, reflecting annual decline of 3.7%.

The balance of trade in both goods and services at the end of 2014-15 clocked up at -$19.5 billion as opposed to the deficit of $19.2 billion recorded in the preceding fiscal year.

Various sub-sectors

Workers’ remittances remained $18.4 billion in the last fiscal year, up 16.5% from a year ago when they totalled $15.8 billion, according to SBP data. This means the country surpassed its targeted annual growth rate of 5.7% in 2014-15.

SBP data shows remittances make up for roughly 45% of the country’s import bill and 94.3% of deficit in the goods and services accounts.

According to a recent SBP publication, Pakistan’s overall balance of payment performance could have been “much more promising” in the absence of a few pull-down factors. The central bank believes the decline in the overall imports is “much smaller” than what the decline in oil prices had envisaged.

Moreover, non-oil imports have surged at a much faster rate, the SBP observed, reflecting the country’s growing dependence on imported raw materials and capital goods.

“To a large extent, therefore, Pakistan’s structural deficit is still persisting. To reduce this, measures should be taken against the inflow of unnecessary/unproductive imports, like packaged food, mobile phones and other consumer goods,” the SBP said, adding Pakistan is not likely to face any “serious” balance of payment concern in the near future.

Published in The Express Tribune, July 23rd, 2015.

 

[I FLY HIGH]

This is really appreciated condition of our narrowed Current account deficit . While local mobile phone industry must be promoted and packaged food fresh fruits and tyres must be discouraged for imports .

 

[Jungibaaz]

Exports have dropped, without oil prices as they are, the deficit would surely have grown.

 

[I FLY HIGH]

There is no considerable decrease in oil import bill as mentioned in the article , export value is dropped because internationally cotton , rice and other food commodities price has fallen . No one can stop to decrease the exports . Anyway great news for us .

 

[Moon]

Exports have dropped, without oil prices as they are, the deficit would surely have grown.

But the Iranian factor will keep the prices low for a long time... No?.

 

[Faiez]

But the Iranian factor will keep the prices low for a long time... No?.

Depends on global economic conditions...If it starts growing like before economic crisis again, the added oil demand might fill the gap and bring the prices back up again. Plus US shale output is expected to drop sooner than later, it's simply not feasible with such low oil prices. That should reduce total oil output and raise prices a little.

 

[Moon]

That should reduce total oil output and raise prices a little.

Geo-politics will come into play, KSA a major oil producer will keep pumping oil to damage Iranian economy, likewise Iran will sooner or later pump more oil to damage KSA's oil dependent economy, it's a game of thrones, both want to be undisputed in the ME. And the US-KSA factor comes into play, America will no doubt want KSA to pump oil to make sanctions on Russia even more brutal.
End to Iran sanctions may bring down oil prices further - Newspaper - DAWN.COM

 

[[Bregs]]

Falling crude prices are god sent opportunity for emerging and developing economies and this must be capitalized by respective govts for better annual growth