As poor dollar inflows continue to haunt the economic managers, the country’s current account deficit swelled to $ 3.77 billion or 1.7 percent of the Gross Domestic Product (GDP) during the first 11 months of outgoing FY12.
The economic observers foresee Islamabad opting for a fresh bailout package of International Monetary Fund (IMF) as the country’s external account continues to stay in the red zone partly because of marginal foreign aid and investment, huge debt servicing, a negative trade balance and the resultant heavy export payments.
According to central bank, during July-May FY12 Pakistan’s current account gap surged to $ 3.77 billion against a negligible deficit of $ 79 million the country faced in the corresponding period of FY11.
With the Pak rupee currently staggering at its lowest level of Rs 96 against the greenback, this manageable deficit, as the economic mangers claim, is primarily attributable to a massive 44 percent increase in the trade deficit.
The State Bank reported that the review period saw the trade balance widening by $ 4.258 billion to $ 13.880 billion against $ 9.622 billion of last year.
While the volume of exports remained almost the same at $ 22.643 billion against FY11’s $ 22.696 billion, the imports would cost the country $ 36.523 billion compared to last year’s $ 32.318 billion.
Foreign disbursements of loan and financial aid remained poor and stood at $ 1.699 billion against $ 1.745 billion the country had received in July-May FY11. The disbursements made were of long term nature of which $ 1.619 billion came under the head of project loans and $ 80 million as a program loans.
In same months last year, the program loans in Pakistan had attracted $ 958 million.
The foreign investment stands to be another sad story as the SBP data show that during the period under review foreign investment in the country nosedived by 62.5 percent or over $ 1.113 billion to an alarming level of $ 678.9 million against $ 1.810 billion the troubled country had received in FY11.
The Foreign Portfolio Investment at the country’s equity market contracted by 109.5 percent or $ 402.8 million to $ 35 million against 367.9 million of last fiscal year.
While the Foreign Direct Investment shrank to $ 756.4 million compared to $ 1.463 billion of FY11, marking a sharp decrease of 48.3 percent.
The repayment of external loans, which have accumulated to $ 62 billion, is another major drain on the cash-strapped country’s depleting dollar reserves. According to central bank, during the current fiscal year, up to May 18, the dollar-hungry country had repaid around $ 2.53 billion to external debtors including the IMF.
Of the total, $ 809 million were paid in two different installments to the Fund under the 2008’s $ 11.3 billion but half-paid Stand-By Arrangement (SBA).
However, despite a massive pressure on the country currency and the economy, the economic mangers are taking some comfort from the fact that Pakistan’s foreign exchange reserves were being supported by some multilateral inflows and a record increase in worker remittances.
While the multilateral inflows, received by the country last month, amounted to $94 million, the remittances sent back home by Pakistanis working abroad are peaking to a historic level.
The State Bank figures show that during July-MayFY12 the country received $ 12.069 billion against $ 10.096 billion of last year. The government expects the remittances to cross the record $ 13 billion by the end of June 30, 2012.
The economic observers believe that during FY12 the current account deficit would set in the range of $ 4 billion to $ 4.5 billion. In percentage terms these estimates account for 1.6 to 1.8 percent of the GDP.
The financing of such a huge deficit, the analysts believe, would remain a major challenge for the resource-constrained government, especially while the foreign investment was meager.
An under-pressure external account coupled with domestic reasons like an increased demand for the greenback from Hajj pilgrims etc, would keep the Pak rupee under pressure, viewed the analysts.
However, they see some respite coming from a possible dip in international oil prices and materialization of the Coalition Support Fund as Washington and Islamabad are still committed to remain engaged on the table.
“Re-entry into IMF program to avert external account crisis,” is the option widely being foreseen by the analysts in the current scenario.-
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Current account deficit of 2% GDP can be lived with in an expanding economy. The problem here is Pakistan's economy might not be expanding for sometime. And then, there is flight of capital and inflation …
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Pakistan does not face only lack of foreign direct investment but even flight of capital. The bad law and order situation, political instability and last but not least energy crises have added to the miseries of the economy. Pakistan has received significant amount as remittances from Pakistanis working in foreign counties. The state bank need to forge new policy and lower interest rate to single digit to encourage private sector investment in the country.
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