Home / Economy / July-August current account deficit widens 102 percent as imports surge

July-August current account deficit widens 102 percent as imports surge

The current account deficit widened 102 percent to $2.601 billion in the first two months of the current fiscal year, figures from the State Bank of Pakistan showed on Tuesday, as higher imports growth offset the improvement in exports.

The country posted a deficit of $1.287 billion in the corresponding period of the last fiscal year. However, the current account gap narrowed to $550 million in August from $2.051 billion in the previous month.

A wider trade gap inflated the July-August current account deficit. This was due to goods imports increasing 27.9 percent to $8.928 billion while exports only went up 17.9 percent to $3.932 billion, the SBP’s data pointed out.

The data issued by Pakistan Bureau of Statistics (PBS) reported last week that trade deficit surged 33.52 percent to $6.290 billion during July-August 2017/18.

The trade deficit was bloated by imports of energy and other capital goods, especially in the context of China-Pakistan Economic Corridor (CPEC).

Imports rose 24.85 percent year-on-year to $9.787 billion in July-August FY18, but exports showed an 11.80 percent increase, amounting to $3.497 billion, according to the PBS figures on foreign trade.

Analysts said the growing external current account deficit (CAD), along with flat remittances continued to put pressure on the balance of payments position.

“As a result of rising CAD, the foreign exchange reserves in the country have been under pressure and are down by nine percent since June, 2017 to $14.7 billion (with State Bank), which covers three-months of imports,” Topline Research said in its recent report.

However, the foreign currency reserves held by the central bank increased $77 million to $14.758 billion as of September 8.

“We expect the CAD during FY18 to be in the range of $16.0-16.5 billion (5.0-5.5pc of GDP), up from $12.1 billion in FY17. This will likely result in further depletion of forex reserves, which we expect to further fall by $3 billion in FY18 to $13 billion (with State Bank), which would be less than 3-months of import cover,”  the report added.

The report also estimated that the funding gap of the CAD would be close to $10-11 billion for FY18.

“The government is likely to arrange this funding through borrowing from international lending institutions, issuance of sovereign bonds and the balance may be arranged from commercial loans and other sources,” it said.

Just like FY17, financial support from China and Chinese institutions cannot be ruled out in light of the ongoing CPEC project of over $50 billion. Besides, the government is also considering measures, including imposition of regulatory duty on non-essential imports to curtail a trade deficit.

Many analysts expect a higher trend of CAD to continue due to an expanding economy, coupled with rising consumerism.

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