A sharp deterioration in the external account position has been witnessed during the first five months of FY12, compared to the previous year. According to SBP's first quarterly report, deterioration in the trade account is likely to get worse in the coming months due to adverse development in international commodity prices.
External account posted a deficit of $1.7 billion during July-November FY12 compared to a surplus of $100.0 million in the corresponding period of the previous year. The deficit in overall external account is attributed to the deterioration recorded in both, the current and financial accounts during the period under review, it added.
Although deterioration in current account was on the cards, the timing and magnitude was unexpected. This larger than expected worsening was mainly concentrated in the month of September 2011 when simultaneous surge in trade deficit and fall in current transfers led to over a billion dollars deficit in the current account during this month alone, the report said. Trade deficit widened due to the surge in POL and fertiliser imports, and deceleration in exports, particularly textiles, the report said, and added that current transfers, on the hand declined, due to a 29.1 percent MoM decline in remittances.
"The fall in remittances was driven by a seasonal slowdown mainly due to delays in the payment of commission to banks bringing in funds and speculative pressures in the forex market", the report pointed out. Fortunately, remittances picked up pace in October 2011 onwards. Consequently, despite the MoM decline in September 2011, remittances recorded a healthy growth of 18.3 percent for July-November FY12 over the year before.
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