C/A deficit narrows to $1.35bn in July-Nov

KARACHI: The current account deficit of the country in first five months further fell to just 18 per cent of what it was during the same period last year.

The State Bank reported on Thursday that the current account deficit fell to $1.359 billion during July-Nov, 2009 against $7.318 billion of last year.

The situation is supportive of government’s struggle to maintain its foreign exchange reserves with the help of massive foreign debt inflows acquired through donor agencies, like IMF.

Experts said the current deficit of this year has no match with the huge deficit of the previous year which would help the government maintain a strong exchange rate policy and reduce its dependency on foreign loans.

They said that big decline in the deficit was due to lesser trade deficit and higher remittances.

Trade deficit as shown by the figures issued by the State Bank declined due to lower imports and exports, reflecting a slow growth of economy.

The exports during the first five months fell to $7.677 billion from $8.652 billion during the corresponding period of last year.

The imports witnessed a bigger slash as it fell to $12.374 billion from $15.705 billion of the last year.

Analysts said fall in trade (both exports and imports) reflects the slow performance of the local economy. The country had 2 per cent growth rate last year while IMF predicted another 2 per cent economic growth for the current fiscal year 2009-10.

‘The final output will be negative for the economy since the slower growth would hit entire segments of economy, like increasing unemployment, reducing consumption and shrinking tax revenue,’ said an analyst.

At the end of last calendar year the country was in crisis of foreign exchange reserves as current account deficit was rapidly increasing while the reserves eroded to lowest level.

The situation forced the government to deal with the IMF for emergency loan of $7.6 billion which further increased to $11.3 billion.

‘Despite lower current account deficit the situation is still not satisfactory since most of the inflows are coming through the borrowing which puts an additional pressure on the country for repayment,’ said Abid Saleem, a researcher and analyst.

He said that the government and economic managers should not ‘overvalue’ the situation of lower current account deficit.

‘The situation might change if oil price goes up or exports from the country fall due to uncertain political situation and rising wave of terrorism in the country,’ said Abid.

Analysts said higher foreign exchange reserves and lower current account deficit would help stabilise the exchange rate, however, the recent decision of State Bank to pass on the entire oil import bill to private sector created some jolt in the market and Rupee lost over 80 paisas against the US dollar during last 10 days.

‘I believe that the oil import payment by private sector has one time impact and now the exchange rate would be stable around Rs84.50,’ said Abid.