The current account deficit has been widening, with the dual effect of rising capital imports and a long running decline in exports. It doesn’t help that remittances have also slowed down. But there is another problem with this burgeoning deficit reported by the central bank—it is underestimated.

We have highlighted the reason in this column earlier. The underestimation comes from the fact that the State Bank of Pakistan (SBP) is underreporting its imports, particular that of power generation and the difference can be ascertained from trade numbers reported by the Pakistan Bureau of Statistics (PBS).

In fact, according to the PBS, machinery imports have 23 percent of the share in total imports (for 8MFY17), against 19 percent in 8MFY16. Meanwhile, the SBP reports this share to be only 16 percent. Oil imports, according to SBP still hold the highest share in total imports.

The two have different sources of data. The PBS gets its data directly from customs when goods cross order; SBP’s source of data is commercial banks when payments are made through the letter of credit for imports.

The central bank recognizes this in its recent state of the economy report, and argues this difference exists historically due to various factors including deferred payments (resulting in a time lag between reporting to customs and SBP), freight and insurance etc. Meanwhile, items such gold or vehicles coming through overseas Pakistani scheme are not routed through the interbank market.

However, the recent increase in the discrepancy is due to the rise in power generation machinery imports that come under CPEC. It is recorded by the customs department but SBP does not have the import financing data available with it. This, the SBP identifies is caused possibly because the bulk of power generation imports are financed outside the Pakistani banking channel.

This also means capital imports, FDIs and loans from China are not reflecting in balance of payment numbers. The SBP is now seeking proper reporting from commercial banks that are dealing with foreign transactions, as well as government bodies looking at CPEC. “This would help in clarifying whether the financing of CPEC-related capital imports is coming in the form of loans (both from commercial and/or foreign sponsors), and equity investment”.

Better reporting would certainly show a higher current account deficit but ultimately, that effect will be balanced out by the increase in loans or FDIs in the financial account.

However, this column has been identifying misreporting or underreporting or in fact, lack of reporting on CPEC related transactions, which should start reflecting in official numbers under accurate heads. This is important for ongoing analysis on CPEC’s progress.