Current Account Deficit Widens

Current Account Deficit Widens

Current Account Deficit Widens: Current account deficit widened to 5.3% of gross domestic product, in the first 10 months of the current fiscal year of 2018 as merchandise imports continued to broadly outstrip exports, while foreign inflows from other sources remained insufficient to finance the gap, as per details shared by State Bank of Pakistan.

The State Bank of Pakistan (SBP) said the current account deficit increased 50% from $9.354 billion in the corresponding period a year earlier.

Current Account Deficit For The Outgoing Year

  • Government estimated current account deficit for the outgoing fiscal year at 4.4% or $13.7 billion, while it set an ambitious target of 3.8% or $12.5 billion for the next fiscal year.

Exports And Imports

  • Exports were recorded at $20.558 billion in July-April compared with $18.141 billion in the corresponding period of the last fiscal year, according to the SBP’s data.
  • Imports stood at $45.560 billion in July-April compared with $38.912 billion a year ago.

Analysts said growing profit repatriation by foreign firms operating in Pakistan also increased the current account gap.

Current Account Deficit Widens
Current Account Deficit Widens

Reason For Increase In Current Account Deficit

  • Higher dividend/interest outflows and lower current transfers took current account deficit to $1.955 billion in April 2018, Zeeshan Afzal, an analyst at Insight Securities said.
  • Current account deficit amounted to $1.214 billion in March.

SBP’s gross reserves declined as the deficit was financed through $1.596 billion loan by the government and $506 million by other sectors.

  • Worker’s remittances rose 3.92% to $16.257 billion during the July-April period.
  • Net foreign direct investment was only $2.237 billion with a growth of 2.4 %.

Analysts expect the current account deficit to further widen as imports are picking up and capital inflows are likely to remain stagnant.

Current Account Deficit Widens
Current Account Deficit Widens

“The current account deficit is likely to be $17-18 billion by the end of this fiscal year,” economist Ashfaque Khan said.

The economy is extremely vulnerable to external shocks due to rising current account gap and foreign debt servicing.

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