Pakistan’s current account deficit (CAD) has reached a record high level, by crossing $6 billion in a short span of five months of the current financial year 2017-18.
According to the State Bank of Pakistan (SBP), CAD increased to $6.430 billion in the period of July to November 2017 against $3.371 billion reported in the same period of last year. This shows an increase of 90 percent year-on-year. This has resulted due to a swelling import bill and a decrease in foreign exchange reserves subsequently.
The figure of $6 billion was estimated for the whole current financial year according to the central bank. However, this mark was reached in merely five months.
The current account deficit is one of the major macroeconomic indicators which is worrisome for the economy in parallel of depletion of foreign exchange reserves, increasing debts and depreciation of Rupee against Dollar.
These indicators are connected to each other and have a huge impact on the economy. These indicators continue to risk the economic progress in terms of GDP growth rate and its sustainability in future .
Receipts of goods’ exports were a little higher at $9.78 billion in 5M of FY 18 as compared to $8.73 billion in the same period of FY17, up 12%. On the other hand, imports bill of goods was huge between July and November, recorded at $21.8 billion as compared to $17.7 billion, depicting an increase of 23 percent year-on-year.
The imbalance of payment between exports and imports stood at $12.09 billion in July to November 2017. Besides, the imbalance of service trade stood at $2.09 billion in July to November 2017.
Resources such as remittances were also received higher by Pakistanis, which were $8.02 billion in first quarter of FY18 from $7.92 billion registered in the same period of last year with a slight year-on-year growth of 1.2%
According to analysts, the deficit of current account is staggeringly high, posing a challenge for the economic managers to contain the situation of microeconomic indicators that also impact negatively on various factors of the economy.
The deficit is the continuation of machinery imports, both for CPEC and non-CPEC energy and infrastructure projects, whereas imports for plant up-gradation under the ongoing export package for the textiles sector also added pressures.
CAD In Future
According to the predictions by SBP, the current and external accounts may remain under pressure expected to emanate from likely elevated import demand.
The current account deficit is projected to remain around last year’s level, that is, in the range of 4.0 to 5.0 percent of GDP, according to the SBP report. Thus, the current account is likely to settle between $4 billion to $5 billion and fiscal deficit will remain between $5 billion to $6 billion.
Given the capital spending requirement of the government for completing various projects under CPEC and likely increase in provincial spending during the election year, achieving the target 4 to 5 percent in FY18 could be challenging.