The State Bank of Pakistan disclosed that Pakistan’s current account deficit increased by a huge 149% during fiscal year 2016-17 (FY17), standing at $12.09 billion in comparison to $4.86 billion during the preceding year.
The difference between imports and exports determines the current account balance and the deficit or surplus indicates whether a country is a net borrower or lender with respect to the world. A massive increase in deficit indicates that the government has not been able to manage its balance of payments over the long run.
Some government critics were expecting the deficit of about $8 billion by the end of June 2017 but the current account deficit has even exceeded that estimate. The main reasons for the enormously growing deficit are:
- Heavy debt servicing
- Recovering oil prices
- Weak exports
In the light of Gross Domestic Product (GDP) percentage, the deficit increased to 4% in FY17 against just 1.7% in the preceding year. In FY17, the goods exported by Pakistan were worth of $21.66 billion in comparison to $21.97 billion in FY16, indicating a year-on-year decrease of 1.4%.
Total imports continue to increase and were valued at $48.54 billion against $41.25 billion in FY16, up 17.6%.
Towards the end of FY17, the balance of trade was observed to be negative $30.45 billion compared with a deficit of $22.68 billion in the preceding fiscal year.
Some experts believe that the downgrade of remittances is a major cause of the imbalance. According to experts, remittances cover up half of the import bill of Pakistan and helps in covering up the deficit in trade of goods account.
Additionally, Pakistan is also experiencing low levels of foreign direct investment in recent years.
The board of investment disclosed that Pakistan received highest FDI of $5.4 billion in fiscal year 2008, but since then the country has not been able to reach even half of that milestone.
Rising Pakistan.
This is Pakistan. This is what happens when you punish an innocent man like Nawaz.
Man, you are a true legend. This all has happened right under the nose of your ‘innocent man’, Nawaz.
Pakistan had years of Back Log of electricity gas and roads. Nawaz Government had arranged Loan for expansion was a terrific feat. Just years back where Musharraf has Played havoc with economy bring prosperity by high inflation in Property ( a Trick and bane for uneducated F.A to become billionaire in fortnights). Dr Ashfaq, Salman Bashir, Dr. Eshrat and Ehtsham is talking in rounds about on talk shows and newspapers talking about sleepiness nights because of high deficit in trade. why not they looked their own performance. They been architect of providing soft loans bringing Cars with CNG and Home appliance specially AC, fridge etc. in market with out thinking about how much more electricity, Gas roads are required. This what IMF suggest so read this
Judging whether deficits are bad
A common complaint about economics is that the answer to any question is, “It all depends.” It is true that economic theory tells us that whether a deficit is good or bad depends on the factors giving rise to that deficit, but economic theory also tells us what to look for in assessing the desirability of a deficit.
If the deficit reflects an excess of imports over exports, it may be indicative of competitiveness problems, but because the current account deficit also implies an excess of investment over savings, it could equally be pointing to a highly productive, growing economy. If the deficit reflects low savings rather than high investment, it could be caused by reckless fiscal policy or a consumption binge. Or it could reflect perfectly sensible intertemporal trade, perhaps because of a temporary shock or shifting demographics. Without knowing which of these is at play, it makes little sense to talk of a deficit being “good” or “bad.” Deficits reflect underlying economic trends, which may be desirable or undesirable for a country at a particular point in time.