The country’s current account (c/a) balance has once again ‘fortunately’ settled in the green zone posting a surplus of $205 million during the first 11 months of outgoing FY11. For the last three months, economic managers have sighed in relief as the country’s current account exhibiting a surplus of $99 million in July-March and $748 million in July-April of FY11.
However Economic observers have voiced concern that the surplus is not reflective of the true economic situation currently prevailing in the recession-hit country where, ideally, the current account should witness a deficit owing primarily to increased oil imports. State Bank of Pakistan (SBP) figures for July-May FY11 show that the country’s current account balance registered a surplus of $205 million against a deficit of $3.402 billion in the same period last year.
Healthy receipts of the greenback on account of exports and worker remittances, the analysts cited, as permanent contributing factors for the surplus. The State Bank counted Pakistan’s dollar receipts under the heads of exports and home remittances, respectively, at $22.781 billion and $10.096 billion during the period under review. Other factors that are partly linked to the surplus, analysts stated, are due to reduced burden of oil imports.
“The surplus is because of narrowing down of the trade deficit,” Farhan opined. The State Bank’s statistics show that during July-May FY11 the country’s trade deficit shrank to $9.385 billion against $10.214 billion of the corresponding period in FY10. The economic observers call it a healthy but ‘unsustainable’ trend which, they believe, was not reflecting the economic ground realities in the Pakistan. “This trend is not reflecting the (growth-averse) economic slowdown in the country,” said Farhan Mahmood of InvestCap.
The analyst said inter-linked factors like industrial go-slow and the resultant reduced demand for essential purchases like that of oil were leading to surplus in the current account. “In a stagnant economy the demand for oil remained low,” the analyst said. Farhan suggested that instead of exports and remittances driven current account surplus the country should rely more on permanent and sustainable attributives like Foreign Direct Investment (FDI).
“We should build up our foreign exchange reserves through Foreign Direct Investment to the finance our debts,” he said. And for attracting foreign investors, he went on to say, economic managers should promote ‘consumerism’ in the country. “Like in India consumerism would generate demand that would attract an across-the-board FDI,” maintained he. Senior economists like Dr Shahid Hassan Siddiqui also have a pessimistic account of the current account surplus.
As recalled by Dr Siddiqui the country had witnessed an accumulative current account surplus of $8.7 billion for three consecutive years during FY2002 and FY2004. But, the analyst lamented, that surplus could not sustain for the following five years ranging from FY2005 to FY2010, which had seen the country’s current account balance constantly in the red zone and registering an accumulative deficit of $ 40 billion.
The analysts, however, agree that the surplus would enable the country to cover its financial liabilities under the balance of payment during FY12 when Pakistan would be starting to retire the IMF’s half-paid $ 11.3 billion SBA. Also, they say, the strong foreign exchange reserves, which presently stand at $ 17.517 billion, would keep the rupee stable during the next year against the greenback.
Further, the SBP data show that with the present surplus the country’s current account grew by 0.1 percent of the gross domestic product (GDP) against minus 2.1 percent of FY10.
