July-January period: C/A deficit exceeds $9 billion on higher imports

The country's external account continues to deteriorate, posting over $9 billion deficit, up 48 percent, during the first seven months of this fiscal year (FY18), mainly due to higher import bill. Economists said the rising goods' import bill has largely contributed to the higher CA deficit. "Recently, rise in goods' import bill is mainly due to ongoing progress on the CPEC-related projects, particularly power and infrastructure development projects, which has stimulated the demand for machinery, heavy vehicles as well as fuel," they added.
In addition, growing energy needs of the domestic manufacturing and consumer transport sectors has also contributed to higher imports. As a result, the massive surge in the trade deficit followed by over $31 billion goods' import bill has taken the size of CA deficit to over $9 billion, they added.
The State Bank of Pakistan (SBP) Tuesday revealed that current account deficit rose by 48 percent during the first seven months of this fiscal year. The country's current account posted a deficit of $9.156 billion in July-January of FY18 compared to $6.182 billion in the corresponding period of last fiscal year (FY17), depicting an increase of $2.97 billion.
The detailed analysis shows that, during the period under review, cumulative deficit of goods, service and income rose by 19 percent or $3.711 billion. With current increase, combined deficit of goods, services and income surged to $22.965 billion in first seven months of this fiscal year compared to $19.254 billion in the same period of last fiscal year. Month-on-month basis, with an increase of 29 percent CA deficit surged to $1.617 billion in January 2018 against $1.256 billion in December 2017.
Economists said financing of rising CA deficit is creating difficulties for the policymakers and the federal government is compelled to finance it by utilizing foreign exchange reserves as the home remittances and Foreign Direct Investment (FDI) inflows are also insufficient to offset a hefty CA deficit. "Presently, the entire burden of funding the CA deficit has been shifted onto the country's forex reserves, which reached below $19 billion in February down from $21.3 billion in June 2017 due to higher CA deficit and external debt servicing," they added.
According to SBP, with $31.042 billion imports and $13.909 billion exports, the country's goods deficit surged to $17.133 billion in July-January of FY18 against $13.859 billion trade deficit in the corresponding period of last fiscal year. Similarly, deficit of income sector also witnessed an upward trend. Income sector deficit surged to $2.875 billion with $3.281 billion payments and $406 million receipts.