Current account deficit shrinks 16.7pc in seven months

KARACHI: Pakistan’s current account deficit narrowed 16.79 percent to $8.424 billion during the first seven months of the current fiscal year of 2018/19 due to what the government said ‘credibility of interventions’.

The State Bank of Pakistan’s (SBP) data on Thursday showed that current account deficit shrunk $1.7 billion from $10.124 billion during the corresponding period a year earlier.

In January, current account deficit sharply fell 47.6 percent year-on-year to $809 million.

Khaqan Najeeb, a spokesperson of the finance ministry told The News that government’s policies are producing effective results “due to credible measures”.

“We are directionally moving strongly towards containing the yearly C/A deficit for FY2019,” Najeeb said. “Credibility of interventions is evident.”

The drop in current account deficit was greatly aided by efforts to curtail imports of goods and services. The government imposed regulatory duties on a number of non-essential items to reduce import bills, while the central bank let rupee devalue by almost 30 percent against the US dollar since the end of 2017.

Trade deficit narrowed 9.66 percent to $19.264 billion in July to January with imports decreasing 5.17 percent and exports increasing 2.24 percent, Pakistan Bureau of Statistics data showed.

There was an advantage of decline in international crude prices, lifting pressure from the oil import bill during the period under review.

Stabilisation measures were also believed to have compressed domestic demand, which eased pressure on non-energy imports.

Remittances from the overseas Pakistani workers amounted to $12.774 billion in July-January FY2019, up 12.22 percent year-over-year.

The SBP, however, said in January’s monetary policy statement financing of current account deficit remained challenging as the private (foreign direct investments and private loans) and official inflows were insufficient to completely finance the deficit.

A significant part of current account deficit was managed by using the country’s own resources, which reduced the SBP’s net liquid foreign exchange reserves.

The foreign exchange reserves held by the SBP fell $163 million to $8.043 billion as of February 15.

The SBP sees current account deficit to narrow to 4.5-5.5 percent of GDP in FY2019 from 6.1 percent in FY2018. The downward revision is due to expectations of receiving higher foreign exchange inflows from both private and official sources during the second half of the year.

Fitch Solutions, the primary distributor of credit ratings agency Fitch Ratings content, said Pakistan’s exports would remain sluggish with international payment pressure to persist going forward.

“This would make the narrowing down of the current account deficit – gap between foreign income and expenditure – challenging,” Fitch Solutions said in its latest analysis on Pakistan’s economy.

“Pakistan’s external accounts continue to deteriorate despite a steep drop in oil prices and with exports likely to come under pressure amid a global trade slowdown… a considerable non-oil import contraction is looking increasingly likely. This will likely adversely impact Pakistan’s economic growth over the coming quarters.”

Pakistan is currently holding talks with the International Monetary Fund over a potential bailout package to stabilise the economy and shore up the foreign currency reserves. Saudi Arabia and UAE have pledged $6 billion in loans and oil payments deferrals each to ease pressures on the balance of payments. Both the countries have already poured in $4 billion as part of aid package since November last year.

Saudi-baked Islamic Development Bank is set to lend Pakistan oil worth $4.5 billion. China also agreed to provide $2 billion in aid to support the country’s foreign currency reserves.