The current account deficit continued to widen and crossed $12 billion mark in the first nine months of this fiscal year (FY18) due to higher import bill. The rising current account could not be completely financed by the surplus in the financial account and compelled the State Bank of Pakistan (SBP) to utilize its foreign exchange reserves to finance the external deficit. During this fiscal year, SBP's liquid foreign exchange reserves were fell by $ 4.76 billion to $ 11.379 billion by end of March 2018.
According to State Bank, on YoY basis the current account deficit rose by 55 percent and overall current account reached $12.029 billion mark during July-March of FY18 compared to $7.99 billion in corresponding period of last fiscal year (FY17).
The absolute increase in the import bill is the key driver of the current account deficit. In addition to a sharp increase in the trade deficit, higher profit repatriation by multinational companies operating in Pakistan, dented the growth in worker remittances and contributed to the rising current account gap.
With massive increase in current account gap, State Bank has already estimated current account deficit at 4 to 5 percent of GDP end of this fiscal year as against target of 2.6 percent.
The detailed analysis showed that, during the period under review, cumulative deficit of goods, service and income was mounted up by 20 percent or $4.92 billion. With current increase, combined deficit of goods, services and income surged to $29.7 billion in first nine months of this fiscal year compared to $24.78 billion in same period of last fiscal year.
Month-on-month basis, current account posted $ 1.163 billion in March 2018 as against $1.281 billion in February 2018.
According to SBP, the increase in commodity prices, especially oil put upward pressure on imports, which were already strong on the back of domestic demand. Although the import growth subsided as the year progressed, payment volume was large enough to offset the export and remittance gains; the resultant deficit in the current account was too large to be financed by private and official financial inflows, SBP said in its recent report.
Some steps, including imposition of regulatory duties and LC margins on consumer imports, have been taken to contain import growth but their scope and depth need to be increased to ensure quick and effective results.
With expected volume of current account deficit in coming months along with size of maturing loans, it has become imperative for the government to ensure that estimated official inflows for the remaining part of the year should be realized, SBP said.
According to SBP's statistics with $40.596 billion imports and $18.267 billion exports, the country's goods deficit surged to $22.302 billion in July-March of FY18 as against $ 18.479 billion trade deficit in corresponding period of last fiscal year. Similarly, deficit of income sector also witnessed upward trend. Income sector deficit reached $3.55 billion with $4.108 billion payments and $558 million receipts.