The economic managers may be comforted by the present upward trend in worker remittances, but the deteriorating balance of payment side of the dollar-hungry country might be ringing alarm bells in the corridors of power. The central bank’s data for first three quarters of FY12 show that the country’s current account deficit widened by a massive $ 3.079 billion to $ 3.089 billion against a negligible $ 10 million of corresponding period last year.
The fresh increase widened the current account deficit by 1.7 percent as a percent of the Gross Domestic Product compared to 0.0 percent of last year. During the period under review, July-March FY12, the country’s GDP rose to $ 178.317 billion from FY11’s $ 158.076 billion. A huge gap in the trade balance appears to be the major attributable factor as the trade deficit in the review period increased by over 42 percent or $ 3.461 billion to $ 11.618 billion against $ 8.157 billion of FY11. The foreign investment, both Foreign Direct Investment (FDI) and Portfolio Investment which have contracted to an alarming level, stands another area of grave concern for the economic mangers. According to State Bank, the review period saw the investors abroad investing only $ 466 million compared to $ 1.393 billion of same months in FY11. This marks an absolute decrease of $ 926.6 million or 66.5 percent. The FDI shrank by 48 percent to $ 599 million from $ 1.157 billion of last fiscal year. The flow of portfolio investment into the violence-hit country depleted by 127 percent to $ 83 million compared to $ 305 million of the previous year. The inflow of dollar on account of disbursements also remained lower at $ 1.411 billion against $ 1.541 billion of FY11 and that too came under the head of long-term loans. Of the total loans, $ 1.333 billion came as a project loan and $ 78 million as a program loan against last year’s $ 648 million and $ 893 million. The inflows under short-term heads were zero. Worker remittances, an account the economic managers are excessively counting on, is the sole indicator that ended up in the green zone and accumulated to $ 9.736 billion. This shows an upsurge of $ 1.720 billion or 21.4 percent when compared with $ 8.016 billion of last corresponding three quarters.
However, the economic observers foresee no instant knee jerks in view of the positive upsets like in the month of February that the analyst believe provided space for a breather to the otherwise widening current account. The eighth month of FY12 saw the current account balance sliding by 28.5 percent or $ 104 million to stand at $ 260 million against $ 364 million of the preceding month, January. The analysts attribute the bridging of the gap during the month to a five percent decrease in imports and modest four percent increase in exports. While the country’s foreign exchange reserves have contracted by over $ 2 billion during the current fiscal year, the economic observers say massive debt repayments happen to be 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,” viewed the economist Asfar Bin Shahid. Others like Farhan Bashir Khan of InvestCap opine that the annual deficit was likely to increase by two percent of the GDP, accounting for $ 2.8 billion.
The State Bank, in its latest Monetary Policy Statement, said by June 2012 the country was likely to see a current account deficit of $ 3.5 billion to $ 5.5 billion.
