The current account balance posted a deficit of some $2.9 billion during the last fiscal year (FY14), mainly due to rising imports of goods, services and income sector. Although, the CA deficit is slightly higher than the International Monetary Fund (IMF) projections, it is in line with the annual target of $2.9 billion set by the federal government. The IMF's forecast was $2.3 billion and the State Bank projected around 1 percent of GDP or $2.5 billion for FY14.
Economists have urged the government to focus on Foreign Direct Investment (FDI) for a long-term stability. "Major inflows received during the last fiscal year are debt-related and have to pay back in coming years," said Muzzamil Aslam, Managing Director, Emerging Economic Consultancy.
Increase in the country's forex reserves appeared to be of a transitory nature temporary as it mounted with support of Eurobond inflow and the IMF loan tranches, he added. "We are expecting that current fiscal year will be easier for current account, however there will be some pressure in FY16 as repayment of IMF's new loan would begin," Muzzamil said.
The State Bank of Pakistan on Monday revealed that the country's CA balance has witnessed an increase of 17 percent during the last fiscal year. The current account posted a deficit of $2.925 billion during FY14 as compared to a deficit of $2.496 billion in FY13, depicting a surge of $429 million. The cumulative deficit of trade, services and income reached $23.079 billion end of last fiscal year against CA transfers of $20.294 billion during the last year.
Similarly, the capital account showed a surplus of $1.833 billion in FY14, compared to only $264 million surplus in the same period last year. This abnormal development can be traced to the receipt of capital grant of $1.5 billion from a friendly country in two equal tranches during February and March 2014.
However, the deficit in Q3-FY14 was about one-third the deficit seen in Q3-FY13, with the improvement coming from a rise in home remittances and receipt of Coalition Support Fund (CSF) and auction of Eurobond during the quarter. Pakistan received some $2 billion against the sale of Eurobond in the international bond market; $1.5 billion received from a friendly country; some $500 million from the auction of 3G licenses; and some $550 billion from the IMF as loan tranche in last quarter of FY14.
According to SBP, grants are typically treated as transfer incomes, as no good, service or asset is provided in return from the counterparty. These transfer incomes are recorded in the secondary income account, which is a sub-component of the current account. However, the grant that Pakistan received from a friendly country has been recorded in the capital account; this is because it is a long-term capital grant, which will be used to finance development projects in the country.
The SBP's statistics showed that higher income and services trade deficit are major contributors in the rising current account deficits. Services sector deficit stood at $2.642 billion with $5.26 billion exports and $7.9 billion imports in FY14 compared to a deficit of $1.564 billion with $6.724 billion exports and $8.288 billion import in FY13.
During the period under review, with a trade deficit of $16.516 billion, the country's overall goods imports stood at $41.685 billion and exports at $25.169 billion. Similarly, income deficit also mounted to $3.9 billion in FY14 as its inflows stood at $522 million and outflows $4.44 billion in FY14.
Meanwhile, month-on-month basis, CA balance posted a deficit of $89 million along with $72 billion current account transfers and a cumulative $2.112 billion deficit of goods, services and income. In addition, financial account posted a $5.233 billion surplus in FY14 compared to $549 million in FY13.