Pakistan’s account deficit at $220m

Pakistan’s current account deficit stood at a provisional $220 million in October, compared with a deficit of $1.034 billion in the previous month, the State Bank of Pakistan said on Saturday. Country’s current account deficit rose thrice in the last four months as compared to the same period last year, signalling difficulties ahead on the external front. For the July-October period, the deficit stood at a provisional $1.555 billion, compared with $541 million in the same period last year, according to data from the State Bank of Pakistan (SBP).    The current account recorded a revised surplus of $268 million in 2010/11, compared with a deficit of $3.946 billion in 2009/10. The State Bank of Pakistan reports that the current account deficit as percentage of the GDP reached 2 per cent in this period while it was just 0.8 per cent last year. Every report appearing on the external front is depressing except that remittances being sent by overseas Pakistanis are still higher by 24 per cent. Trade imbalance during these four months was much higher than the last year while foreign investment was almost negligible for the economy of 180 million Pakistanis. There are no positive signs of hopes for negotiations on a new loan with the IMF while the fast outflow on debt-servicing and actual debt can create a problem which the country had faced in 2008. The country was about to default on the external front in 2008 and an emergency loan, particularly for current account deficit was arranged with IMF. The agreement became possible because of good relations with United States while the situation is reverse at present. The ratio of deficit to GDP was alarming for analysts and researchers who are showing anxiety over the developments, particularly related to outflow of foreign investment from the equity market and due to a sharp decline in foreign direct investment (FDI) trend. For analysts, it was more serious in the wake of widening trade gap, which is the actual force behind higher current account deficit. Trade and services gap rose to minus $6.227 billion, 32 per cent higher than last year, during the four months. “The deficit is higher than our expectations. This may affect value of Pakistani rupee once the central bank stops supporting the local currency,” said Mohammad Sohail, CEO of Topline Securities. By with the help of State Bank, the vulnerable local currency succeeded to maintain a respectable relation with the US dollar for last one-and-a-half years as exchange rate was stable with some wild fluctuations. This was due to current account surplus in fiscal year 2011 and record foreign exchange reserves with a narrow trade gap. “Higher current account deficit will also compel State Bank to carefully evaluate the policy interest rate decision,” he said.