Pakistan’s current account balance remained in green zone for the second consecutive month, as it posted a surplus of $748 million in July-April of the current financial year. Current accounts showed a surplus of $99 million last month in comparison to a deficit of $3.106 billion in the corresponding period last year.
Analysts claimed that this positive trend on the current account front was ‘unsustainable’ and is primarily driven by the healthy inflow of the greenback on account of exports and remittances during the period under review. The State Bank’s provisional data released on Tuesday show a surplus of $ 748 million in the country’s current account balance against a deficit of $ 3.456 billion of the last corresponding period.
In April, the current account had a provisional surplus of $716 million compared with a surplus of $230 million in March. “This is not a sustainable trend as we had witnessed such a similar unsustainable accumulative surplus of $8.7 billion for three consecutive years during FY2002 and 2004,” Dr Shahid Hassan Siddiqui told Pakistan Today. The senior economist said during the subsequent five years, from FY2005 to FY2010, the country’s current account balance had constantly been in the red zone registering an accumulative deficit of $40 billion.
Dr Siddiqui termed the current surplus a ‘healthy’ trend, but drew the line on its sustainability owing to an ‘insignificant’ narrowing down of the country’s trade deficit. The SBP figures reveal that July-April FY11 saw the country’s exports of goods and services surging by 58 percent or $8.9 billion to stand at $25.188 billion against $16.281 billion of last corresponding period. During the said period the exports grew by 27 percent against 2.2 percent of last corresponding months.
Imports grew at a relatively lower pace of 13.2 percent to $28.811 billion against negative 5.5 percent during the last fiscal year. In July-April FY10, the country’s import bill amounted to $25.459 billion. “You see the Federal Bureau of Statistics’ figures that show that the trade deficit has not bridged significantly,” the analyst said. Speaking on exports he said, “The exports, particularly that of textiles, have increased but in terms of prices not volumes.”
In addition, the analyst cast a negative tone on the present healthy inflow of remittances. “It is apprehended that some people are smuggling their money abroad through hundi and hawala and then bring it back in the face of remittances,” the economist noted. According to the central bank, July-April FY11 saw the Pakistanis Diaspora remitted a record $9.046 billion, registering an increase of $1.739 billion or 13.7 percent when compared with last year’s $7.307 billion.
The State Bank data show that with the present surplus the country’s current account grew by 0.5 percent of the gross domestic product (GDP) against negative 2.4 percent last year. Another analyst Farhan Mehmood of InvestCap said the current surplus was largely dependent upon the prices of oil and cotton in the international market. “Improvement in exports and remittances would rid Pakistan of its oil import bill blues,” Farhan said. The analyst said the country’s good performance on the external front was reflecting positively on the repayment side.
He, however, warned that the country would have to build its repayment capacity through sustainable means to avoid another 2008-like situation. “There is no big drag on external side yet, but Pakistan may be seeking another extension form the IMF if it did not build its repayment capacity,” the analyst noted with concern. He said floods in Australia and higher demand in the US and India had pushed the prices of Pakistani cotton in the international market.
“The local production and international prices of cotton would be determining the size of exports next year,” he added. The analyst said the next year’s startup of repayment of the IMF Stand-By Arrangement (SBA) loan would be ‘big concern’ for the country’s economic mangers who had budgeted for FY12 the repayment at the rate of Rs 91.5 a dollar. The improving current account balance helped the country’s external accounts posting a surplus of $ 1.6 billion during July-February FY11.
“The improvement in the country’s external accounts is attributed to contraction in the current account deficit,” said Second Quarterly Report on State of Pakistan’s Economy issued by the State Bank on April 8.
Current account gains ‘unsustainable’
