Pakistan’s current account deficit widened to $1.58 billion in the first six months of fiscal 2014 as opposed to a deficit of $83 million in the corresponding period of fiscal 2013, according to data released by the State Bank of Pakistan (SBP).
However, December witnessed a current account surplus of $285 million. This was in contrast to a deficit of $572 million in November.
Standard Chartered Bank Senior Economist Sayem Ali said the current account surplus in December is a positive development for the foreign exchange markets. He added that the improvement has helped bring stability to the rupee-dollar exchange rate in recent weeks.
“Tighter monetary policy and sharp depreciation of the rupee has led to a current account surplus (in December),” Ali noted, adding the current account surplus was primarily led by higher exports and remittances from overseas workers last months.
Pakistan exported goods worth $2.3 billion in December as opposed to exports totalling $1.8 billion in the preceding month, reflecting a month-on-month increase of 27.8 percent. For the July-December period, however, exports increased to $12.5 billion, up 3.2 percent compared to the corresponding six-month period in fiscal 2013.
Similarly, workers’ remittances increased to $1.3 billion in December from $1.1 billion in November, which shows a monthly rise of 22.6percent. Workers’ remittances in July-December increased to $7.8 billion, registering an increase of 9.4 percent over the corresponding six-month period in the preceding fiscal year.
“Lower interest payments also supported a lower current account deficit (in July-December),” he observed.
The current account deficit in the last quarter (October-December) was $383 million as opposed to a deficit of $522 million in the corresponding three-months of fiscal 2013.
Ali also expressed concerns over the Balance of Payment (BoP) outlook due to weak foreign exchange reserves held by the SBP, which stood at $3.4 billion on January 10. The reserves cover only one month of exports. They have decreased over 37 percent since the beginning of the current fiscal year due to loan repayments.
The SBP forecasts that the country will have a current account deficit of $4 billion – or 1.8 percent of gross domestic product (GDP) − in the current fiscal year as opposed to $2.5 billion (1 percent of GDP) recorded in the preceding fiscal year. “This indicates that the rupee will remain under pressure in 2014 on a wider current account deficit and weak foreign investment inflows,” Ali said.
Deficit widens to $1.58b in first half, SBP data shows
