TUESDAY MARCH 20: July-February current account deficit widens to almost $3 billion

KARACHI: The country's current account deficit continues to widen. It reached nearly $3 billion, registering a notable increase of 1421 percent, during first eight months of current fiscal year (2011-12) primarily driven by high deficit of trade and services sectors, besides slow foreign inflows.
The State Bank of Pakistan on Monday revealed that current account balance, which was surplus during the last fiscal year, is again on increase posting a deficit of $2.95 billion during July-February of fiscal year 2011-12 compared with $194 million in the corresponding period of last fiscal year 2010-11, depicting an increase of $2.578 billion.
"Current deterioration in CA balance is an alarming situation, as in the past high current account deficit forced Pakistan to rejoin the International Monetary Fund (IMF)," economists said. They added that if high current account deficit, followed by massive goods and services sector deficit, if not checked, may push foreign exchange reserves lower, prompting need to seek a new programme from the IMF.
They recalled that in November 2009, due to rising current account deficit and depleting forex reserves, the country got a loan of $11.3 billion under the Stand by Arrangement (SBA) to avoid default. Economists said that massive increase in import of trade goods and services sector are the chief reason for widening CA deficit.
"Deterioration in the current account is likely to worsen in coming months due to adverse development in international commodity prices as Pakistan is importing huge quantity of petroleum, urea etc," they added. The State Bank statistics show that cumulative deficit of goods, service and income has gone up by 43 percent or $4.363 billion to $14.382 billion in first eight months of current fiscal year as against deficit of $10 billion in same period of last fiscal year.
Major growth was witnessed in goods deficit and the country's overall goods import stood at $26.766 billion and exports at $16.251 billion with trade deficit of $10.515 billion during July-February of fiscal year 2011-12. Previously deficit stood at $7.349 billion in same period of last fiscal year ie 2010-11, depicting an increase of $3.166 billion.
During the period under review, with an increase of 148 percent or $1.14 billion, the deficit of services sector has reached $1.921 billion in July-February of current fiscal year compared to $984 million in corresponding period of last fiscal year. Similarly, income sector deficit reached $1.946 billion with $2.54 billion payments and $600 million income during the first eight months of current fiscal year.
After a gap of six years, the country's current account balance became positive and surplus by $542 million in fiscal year 2010-11 (FY11) compared with $3.94 billion deficit in fiscal year 2010 primarily driven by all-time high inflows of home remittances and exports. However, since the beginning of current fiscal year, CA deficit is growing rapidly followed by high trade deficit and slow foreign inflows. Current transfers are also on decline due to fall in remittances sent home by overseas Pakistanis and stoppage of SBA tranches by IMF.