Current account gap widens to $2bn

[p(-)0ENiX]

—File Photo

Current account gap widens to $2bn
Shahid Iqbal - 2014-02-20​

KARACHI: The current account deficit rose to $2 billion in the first seven months of this fiscal year.

Despite the government efforts no improvement was noted in the dollars inflows while the outflows were too high resulting in serious imbalance on external front during the period under review.

Analysts and bankers said that higher remittances could not cover up the widening current account gap, which indicates weakness of the economic strategy that has yet to deliver. The remittances increased to over $9bn in the first seven months of FY14.

The State Bank reported on Wednesday that the current account deficit widened to $2.055bn during July-Jan period of 2013-14 compared to $441 million deficit in the same period of previous year.

The situation looks extremely odd as the foreign exchange reserves fell to $7.6bn of which the State Bank held just $2.8bn which the government can use to meet its expenses.

The main reason for rising deficit was the imbalance in the trade of services as the export of services fell sharply during the period under review.

The export of services plunged to $2.705bn from $4.465bn in the corresponding period of last year.

Bankers say the agreement with the IMF has yet not supported the country’s poor health of reserves which is why the exchange rate regime is under pressure, current account deficit is rising and the government is struggling to meet its foreign payment obligations.

After receiving disbursement from the Coalition Support Fund (CSF) the country is expected to get second tranche of IMF loan this month.

Currency experts said the dollars were easily available in the open market while the inter-bank market is walking on tightrope.

Currency dealers said the finance ministry has been influencing the market as the exchange rate is stable for over a month, but the experts said it would not last longer.
​

**********​

​

 

[VCheng]

The situation looks extremely odd as the foreign exchange reserves fell to $7.6bn of which the State Bank held just $2.8bn which the government can use to meet its expenses.

Odd? The real number is negative since the liabilities of SBP are greater than the $2.8 billion on its books.

 

[p(-)0ENiX]

Odd? The real number is negative since the liabilities of SBP are greater than the $2.8 billion on its books.

Yeah, that's the reason they are looking forward to the IMF loan. These economic issues seem to be heavily exacerbated by the power shortage, apart from other known factors that is.

 

[Bilal.]

Strange! all the reports up till now were showing an ~8% rise in export and a more or less stagnant imports and now this?

 

[jarves]

2 billion is about 25% of Pakistani foreign resrves.
Not much to worry yet.

 

[Bilal.]

Please help me understand:

http://sbp.org.pk/ecodata/Exports-(BOP)-Countries.xls

http://sbp.org.pk/ecodata/Imports-(BOP)-Commodities.xls

http://sbp.org.pk/ecodata/Homeremit.xls

http://sbp.org.pk/ecodata/Netinflow.xls

How exactly did we end up with this current account deficit?

Total Exports(Jul-Jan): 14,711,733

Total Remittances(Jul-Dec): 7,790.02 (January numbers not included!)

Net Inflows of Foriegn Investment(Jul-Jan): 640.2

Total Imports(Jul-Jan): 21,006,233

 

[VCheng]

Strange! all the reports up till now were showing an ~8% rise in export and a more or less stagnant imports and now this?

Why is it strange? Most reports from the GOP are lies.

 

[p(-)0ENiX]

Please help me understand:

How exactly did we end up with this current account deficit?

Total Exports(Jul-Jan): 14,711,733

Total Remittances(Jul-Dec): 7,790.02 (January numbers not included!)

Net Inflows of Foriegn Investment(Jul-Jan): 640.2

Total Imports(Jul-Jan): 21,006,233

I didn't go through all of those links, but as per the main article, the trade deficit is kind of obvious. Remittances & foreign investments play their parts too. However, external foreign investment's benefits are more visible later on when the investment starts producing a return, & in the case of internal foreign investment in the goods & services sector; it should aid in reducing trade deficits. Let's not forget about the impact of dividends, & interests on loans either, both of which influence the current account & the remittances won't necessarily be enough to balance the account in this particular scenario.

Why is it strange? Most reports from the GOP are lies.

How do they get away with that? What about the internal & external audit?

 

[Bilal.]

Why is it strange? Most reports from the GOP are lies.

Unless institutions like IMF say they are (like in the past), we'd have to take them as correct.

I didn't go through all of those links, but as per the main article, the trade deficit is kind of obvious. Remittances & foreign investments play their parts too. However, external foreign investment's benefits are more visible later on when the investment starts producing a return, & in the case of internal foreign investment in the goods & services sector; it should aid in reducing trade deficits too. Let's not forget about the impact of dividends, & interests on loans either, both of which influence the current account & the remittances won't necessarily be enough to balance the account.

Current account deficit is "net inflows - net outflows" of foreign exchange and Net foreign invest is part of the Net inflows. In any case even if we exclude it in the calculation the the remitences + export exceed our import bill as per the above figures. Need help to understand how did we end up with $2B Current account deficit...

 

[p(-)0ENiX]

Current account deficit is "net inflows - net outflows" of foreign exchange and Net foreign invest is part of the Net inflows.

I know what the current account deficit is & that's why I was referencing to the role remittances, internal & external investments (inflow & outflow) play in shaping the account. Since the inflow of foreign investment is more, in the private sector, that would imply paying dividends to those foreign investors as well alongside the interest payments for loans. All of that needs to be accounted for when evaluating the cause for this deficit. The trade deficit which is clearly stated in the article has a number of factors backing it, & that includes electricity & gas shortages currently affecting industrial output.

 

[Bilal.]

I know what the current account deficit is & that's why I was referencing to the role remittances, internal & external investments (inflow & outflow) play in shaping the account. Since the inflow of foreign investment is more, in the private sector, that would imply paying dividends to those foreign investors as well alongside the interest payments for loans. All of that needs to be accounted for when evaluating the cause for this deficit. The trade deficit which is clearly stated in the article has a number of factors backing it, & that includes electricity & gas shortages currently affecting industrial output.

Mere bhai, the numbers from SBP site shows Export + Remittance to be greater than imports. If you factor in remittance Jan which should also be in tune of $1.2B then:

Exports + Remittance = $23.7B

Imports = $21B

23.7-21 = $2.7B

Even if we dont factor Foriegn aid and investment we are left with $2.7B. I am sure the total repatriations of profits and debt servicing wont exceed $2.7B.

 

[p(-)0ENiX]

Mere bhai, the numbers from SBP site shows Export + Remittance to be greater than imports. If you factor in remittance Jan which should also be in tune of $1.2B then:

Exports + Remittance = $23.7B

Imports = $21B

23.7-21 = $2.7B

Even if we dont factor Foriegn aid and investment weare left with $2.7B. I am sure the total repatriations of profits and debt servicing wont exceed $2.7B.

Yes, based on the State Bank's sources that you have provided alongside the calculations you have made, there shouldn't be a current account deficit unless interest payments, total repatriations, which include dividends, et cetera helps the outflow exceed the total inflow. I heard that a reduction in interest payments had decreased this deficit previously, but that may have changed now. Without taking in to consideration the total outflow of cash apart from imports in this period of the fiscal year, we simply can not evaluate the status of the current account, & figures based on estimation or guess work won't aid in this case. Furthermore, the main article uses the State Bank as a source too. This implies that the fall in exports would have imbalanced these payments, which has been reported in the main article.

 

[VCheng]

.............

How do they get away with that? What about the internal & external audit?

The internal audits are a joke. The external audit reports go to the commissioning institutions who release only portions of them.

Unless institutions like IMF say they are (like in the past), we'd have to take them as correct..............

The reports being peddled today will be revealed tomorrow as lies, "like in the past".

 

[shuntmaster]

Mere bhai, the numbers from SBP site shows Export + Remittance to be greater than imports. If you factor in remittance Jan which should also be in tune of $1.2B then:

Exports + Remittance = $23.7B

Imports = $21B

23.7-21 = $2.7B

Even if we dont factor Foriegn aid and investment we are left with $2.7B. I am sure the total repatriations of profits and debt servicing wont exceed $2.7B.

What about debt servicing?

 

[p(-)0ENiX]

The internal audits are a joke. The external audit reports go to the commissioning institutions who release only portions of them.

This implies that the external auditors are essentially local firms that the government may have some leverage over, right? In order to deal with that, could external audits be undertaken under the supervision of the IMF?