The economic observers foresee the “worst scenario” ahead as the country’s current account deficit widened to $2.633 billion during the first seven months, July-January, of current fiscal year, FY12. This, if compared to $96 million of FY11’s last corresponding period, depicts a mammoth increase of 2,643 per cent or $2.537 billion.
As a percentage of the Gross Domestic Product (GDP), the gap stood at 1.9 per cent against 0.1 percent of last year.
A monthly account of the deficit shows that during January 2012, the country’s current account deficit accumulated to $305 million against $118 million of the same month in FY11.
Massive debt repayments, the analysts cite, were a major driving force behind the widening of the current account deficit this year. “The worst scenario may come ahead as the deficit could widen by $5.5 billion,” warned an economist, Asfar Bin Shahid.
The retirement of country’s huge external debts, according to the SBP data, have crossed the $ 60 billion mark, a slowdown in exports and decrease in local industries’ production were major attributable factors for the enhanced deficit. Former Finance Minister Dr Hafeez Shaikh, backed by the central bank, however, is reported to have said the repayment of $1.2 billion to the IMF and other liabilities were already budgeted and would, therefore, have a negligible impact on the economy. On the negative side, the State Bank Friday reported during the period under review, the country’s trade deficit swelled to $9.057 billion compared to $6.531 billion of the July-January FY11. The exports grew modestly by over a billion dollars to $14.100 billion from the previous $13.150 billion, whereas, the imports marked an upsurge of $4 billion and rose to $23.157 billion against FY11’s $ 19.68 billion.
The current upward trend in international oil prices was also increasing the volumes of import payments for the dollar-starved country, the analysts said. “A barrel of the Brent Crude priced at $120 on Thursday,” A B Shahid recalled.
The real point of concern the economist said was the fast closing down of local industries which was adversely reflecting on the production side. “If this goes unchecked, we would also have to import those items that have previously been produced at home,” he warned.
Resultantly, the analyst said, the size of imports would go up; putting more pressure on country’s already depleting foreign exchange reserves, which stand at $16.768 billion, including $4.482 billion of the commercial banks. Worker remittances is the only front that the economic managers may take comfort from. According to central bank, overseas Pakistanis sent back home $7.436 billion during the review period against $ 6.118 billion they remitted during same period last year.
The reimbursements from the foreign loaners and donors also remained restricted to long-term project and programme loans worth $1.007 billion against last year’s $1.093 billion.
No short-term commercial loans including that from Islamic Development Bank (IDB) came to the country during this year as well as last year.
The hopes for financing from other foreign lenders like World Bank and Asian Development Bank are also dimming as these multilateral loaning agencies have linked their credit to a Letter of Comfort (LoC) issued by the International Monetary Fund in favour of Pakistan. The State Bank of Pakistan, in its latest Monetary Policy Statement, said by June 2012 the country was likely to see a current account deficit of $3.5 to $5.5 billion.
Debt repayments widen C/A deficit to $2.633b during July-JanFY12
