Stephen Cohen
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Pakistan’s Current account deficit widens 210%, stands at $2.05 billion in July
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Stephen Cohen
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KARACHI:
Pakistan’s current account deficit (CAD) widened by a massive 210% in July 2017, standing at $2.05 billion compared to $662 million in the same month of previous year, according to the State Bank of Pakistan (SBP) data released on Monday.
“The government needs to take assertive actions as soon as possible to arrest CAD and control the decline in foreign exchange reserves,” a Topline Securities report said on Monday.
Some of the measures that the government must take immediately, the report added, could be rupee devaluation, levy of regulatory duty on non-essential imports, export promotion, floating dollar bonds, bilateral borrowing, etc.
Pakistan has already posted a much higher-than-expected CAD of $12.1 billion (4% of gross domestic product – GDP) in the previous fiscal year ended June 30, 2017.
The report predicted that this year’s CAD may reach $16 billion (5% of GDP), the highest since fiscal year 2008, which would be subject to revision if the above trend persisted.
Experts divided as Pakistan’s current account deficit balloons 205%
With the difference between exports and imports being the biggest determinant of the current account balance, a deficit or surplus reflects whether a country is a net borrower or net lender with respect to the rest of the world.
The enormous increase in the deficit suggests that the government has been unable to manage its balance of payments position over the medium and long run.
The deficit is growing due to heavy debt servicing, recovering oil prices and weak exports. Analysts say in the current scenario of falling foreign currency reserves, the rupee’s depreciation and monetary tightening in the next few months cannot be ruled out.
As a percentage of GDP, the deficit rose to 7.2% in July 2017 as opposed to just 2.6% in the same month of previous year.
In the first month (July) of fiscal year 2017-18, Pakistan exported goods worth $1.80 billion compared to exports valuing $1.49 billion in July 2016, reflecting a reasonable year-on-year increase of 21%.
However, imports in July 2017 jumped much faster to $4.69 billion as opposed to $3.11 billion in the comparable period of last year, up 51%. Balance of trade in both goods and services in July was negative $3.38 billion compared with a deficit of $1.96 billion in the same month of previous year.
Worker remittances amounted to $1.54 billion in July 2017, up 16% from the same period of previous year, when they totalled $1.33 billion.
Pakistan’s trade deficit reaches record high
Remittances make up almost half of the import bill of Pakistan and cover the deficit in the trade of goods account. Some experts believe that any slowdown in remittances is a worrying sign for the country.
Moreover, Pakistan has also been facing low levels of foreign direct investment (FDI) in recent years.
In FY17, the FDI increased just 5% to $2.41 billion compared to $2.30 billion in the previous year.
According to the Board of Investment, Pakistan received a record high FDI of $5.4 billion in fiscal year 2008, but since then the country has been struggling to touch even half of that milestone.
Published in The Express Tribune, August 22nd, 2017.
Pakistan’s current account deficit (CAD) widened by a massive 210% in July 2017, standing at $2.05 billion compared to $662 million in the same month of previous year, according to the State Bank of Pakistan (SBP) data released on Monday.
“The government needs to take assertive actions as soon as possible to arrest CAD and control the decline in foreign exchange reserves,” a Topline Securities report said on Monday.
Some of the measures that the government must take immediately, the report added, could be rupee devaluation, levy of regulatory duty on non-essential imports, export promotion, floating dollar bonds, bilateral borrowing, etc.
Pakistan has already posted a much higher-than-expected CAD of $12.1 billion (4% of gross domestic product – GDP) in the previous fiscal year ended June 30, 2017.
The report predicted that this year’s CAD may reach $16 billion (5% of GDP), the highest since fiscal year 2008, which would be subject to revision if the above trend persisted.
Experts divided as Pakistan’s current account deficit balloons 205%
With the difference between exports and imports being the biggest determinant of the current account balance, a deficit or surplus reflects whether a country is a net borrower or net lender with respect to the rest of the world.
The enormous increase in the deficit suggests that the government has been unable to manage its balance of payments position over the medium and long run.
The deficit is growing due to heavy debt servicing, recovering oil prices and weak exports. Analysts say in the current scenario of falling foreign currency reserves, the rupee’s depreciation and monetary tightening in the next few months cannot be ruled out.
As a percentage of GDP, the deficit rose to 7.2% in July 2017 as opposed to just 2.6% in the same month of previous year.
In the first month (July) of fiscal year 2017-18, Pakistan exported goods worth $1.80 billion compared to exports valuing $1.49 billion in July 2016, reflecting a reasonable year-on-year increase of 21%.
However, imports in July 2017 jumped much faster to $4.69 billion as opposed to $3.11 billion in the comparable period of last year, up 51%. Balance of trade in both goods and services in July was negative $3.38 billion compared with a deficit of $1.96 billion in the same month of previous year.
Worker remittances amounted to $1.54 billion in July 2017, up 16% from the same period of previous year, when they totalled $1.33 billion.
Pakistan’s trade deficit reaches record high
Remittances make up almost half of the import bill of Pakistan and cover the deficit in the trade of goods account. Some experts believe that any slowdown in remittances is a worrying sign for the country.
Moreover, Pakistan has also been facing low levels of foreign direct investment (FDI) in recent years.
In FY17, the FDI increased just 5% to $2.41 billion compared to $2.30 billion in the previous year.
According to the Board of Investment, Pakistan received a record high FDI of $5.4 billion in fiscal year 2008, but since then the country has been struggling to touch even half of that milestone.
Published in The Express Tribune, August 22nd, 2017.
ziaulislam
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I was warning this is going to happen 2 years ago and no body believed me
Poor econimical policies zero export exploitation and poor energy policy is the reason
Poor econimical policies zero export exploitation and poor energy policy is the reason
what is the worry ? The trade deficit is a function of all the equipment imported under CPEC
AZ1
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lol CPEC CRY
defence_analyst
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Exports in July up 21%, remittances up 16% when its going down in must countries like in India or BD. Imports are good as all that machinery will help boost exports in year or two.
hussain0216
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Its a necessity, we cant build the nation without them, massive infrastructure programmes are under way and we need to import costly machinery and materials in order to complete this will go on for a few years as CPEC and the programmes mature
Tshering22
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What about your most prized export?
Textile?
Pakistan is known for premium textile exports around the world.
But now many textile traders have raised their voices against fabric from China which is also passing through CPEC and putting your people out of jobs.
Heavy machines I can understand.
But taxing Pakistani traders and giving tax breaks to Chinese textiles?
That's not good.
SarthakGanguly
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CPEC will fix this. Indians are just jealous.
Kuch paane ke liye kuch khona bhi padta hai.
Tshering22
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Kuch paane ke liye kuch khona bhi padta hai.
Bhai sahab, main industry is going out of business.
What are you saying?
SarthakGanguly
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hussain0216
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Textiles like everything else was suffering due to the power problems, making them increasingly uncompetitive and the power issues meant deadlines for delivery were being missed etc
Power problems were shaving atleast 2 percentage points off our growth
These basic structural issues have to be fixed regardless in order to build a strong foundation
The weaker and uncompetitive will be in trouble but the stronger will benefit from a stronger growing economy, infrastructure, transport links and power
For atleast 2-5 years we will have to spend to get machinery etc to boost the projects and such figures and reports will be the norm
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