C/A deficit narrows by 68pc in 9 months

KARACHI: The current account deficit kept supporting the traditionally weak external imbalances of the country as the deficit fell by 68 per cent at the end of third quarter of the current fiscal.

The State Bank reported on Monday that the current account deficit at the end of July-March 2009-10 was $2.702 billion. It was vastly against the massive deficit of $8.379 billion during the same period last year.

Since at the end of three quarters of the current fiscal year the trend of low current account deficit still persists, economists believe that the on-going financial year would end up with minimum deficit on external front.

However, the massive inflows of foreign debt mostly from IMF could change the scenario in the next couple of years and even rising prices of oil could tilt the positive trend towards the other side.

Experts have been expressing fear that rising oil price, which has reached over $83 per barrel, could cause an outflow of dollars from the reserves making the situation once again as difficult as it was in 2008.

Pakistan has raised its dollars reserves to over $15 billion till last week but most of it consists of loans from IMF.

The details of the imbalances showed that the trade deficit significantly declined during the nine months period. Exports grew by 0.5 per cent during this period against a decline of minus one per cent in the same period last year.

Imports fell by 8.8 per cent during the same period reflecting the lower oil prices compared to last year and low economic activity in the country. The exportable goods produced in the country consume 34 per cent imported ingredients to sell in the international market.

Low imports also mean low exports but the latter rose slightly, which reflects that Pakistan has been exporting raw and semi-raw material, including agricultural products to fetch higher foreign exchange.

Pakistan sold rice of about $2 billion last year, while bumper cotton crop this year opened a new window to earn dollars by exporting cotton and semi raw material like cotton yarn, and cotton cloth etc.

The trade imbalance fell by 22 per cent compared to last year during the nine months. The imbalance during this period in terms of money was of $8.024 billion compared to $10.262 billion earlier.

However, services sector performed well compared to trading in goods. The imbalance in services shrunk to $1.907 billion, while it was $2.987 billion during the same period last year.

The State Bank said the collective imbalance of goods and services was $9.931 billion against $13.123 billion during the corresponding period of last year.

It said the current account deficit has reached minus 2 per cent of Gross Domestic Product (GDP), which is substantially lower than last year.

The previous year recorded the deficit at minus 6.7 per cent of GDP during the same period which practically crippled the economy and compelled the government to seek emergency aid from the IMF.

Analysts said as far as the external account is concerned, the situation is satisfactory for the country, especially in the wake of $15 billion reserves, while about $5 billion is still due from the IMF as part of the agreement. Pakistan signed agreement for a total $11.3 billion; it received about $6 billion, while $1.2 billion is expected to come by early next month.

However, analysts cautioned that situation could be worse if the slowing trend of remittances and foreign direct investment (FDI) were not considered in the formulation of future economic strategy.


Source Dawn News