The current account deficit shrank by only 4.5%, or $88 million, year on year in the first eight months of the fiscal year. It amounted to $1.95 billion in the same period of the preceding fiscal year. The minute reduction in the current account deficit reflects Pakistan’s failure to benefit from record-low oil prices witnessed over the past many months.
A deficit or surplus reflects whether a country is a net borrower or lender of capital with respect to the rest of the world.
The country’s current account balance was in surplus, however, during the last month alone. It clocked up at $157 million in February as opposed to a deficit of $590 million in January.
As a percentage of the gross domestic product (GDP), the current account deficit decreased from 1.1% in the preceding fiscal year to 0.9% in Jul-Feb.
Pakistan’s total imports of goods in Jul-Feb were valued at $26.3 billion as opposed to $27.9 billion in the same eight months of the preceding fiscal year, which shows an annual decrease of 5.7%.
Pakistan exported goods worth over $14.4 billion in Jul-Feb as opposed to the exports of goods valuing almost $16 billion in the same period of the last year, reflecting an annual decline of 9.9%. Not only Pakistan’s exports are declining, SBP data shows, their rate of decline is higher than the corresponding decrease in imports.
Declining oil prices will result in a year-on-year drop of over 23% in Pakistan’s oil import bill in 2015-16, as per the estimate of the IMF. However, many analysts believe the deficit in the current account is unlikely to change into a surplus by the end of 2015-16 despite a massive drop in international oil prices.
According to the Economist Intelligence Unit (EIU), an international forecasting and advisory service, Pakistan’s merchandise trade deficit is expected to widen over the coming years as a result of greater demand for imported investment and consumer goods.
The import bill will increase further, as oil prices recover post-2016, the EIU said in a report last week. It added that exporters in Pakistan will struggle going forward owing to persistent power shortages and poor basic infrastructure.
Workers’ remittances remained $12.7 billion in July-Feb, up 6% from the same months of the last year. Remittances have played a significant role in improving the country’s external sector, as they make up for almost half of the import bill and cover the deficit in the trade of goods accounts.
