Pakistan News

Current account deficit down 2.5pc in July-Sept

Current account deficit down 2.5pc in July-Sept

KARACHI: The current account deficit for 1QFY19 slightly declined by 2.5 per cent or $96 million, reflecting the impact of 13pc higher remittances during the same period.

The State Bank of Pakistan (SBP) reported on Monday that the current account deficit during July-September was $3.665bn, compared to $3.761bn in the same period of last fiscal year.

The SBP report shows the current account deficit in September jumped by 61pc to $952m compared to $592m in August.

The trend indicates that the country would not be able to cut the deficit to any significant level.

In FY18, the current account deficit was $18bn which created a big gap in the country’s balance sheet and the new government is trying to arrange about $12bn to bridge this deficit.

The impact of government policies to reduce the deficit is yet to appear in the balance sheet while higher oil prices in the international market did not allow the country’s import to see a decline.

The new government is desperately looking for borrowing options to meet the current account deficit. The trade deficit is the main reason for higher current account deficit. The imports have increased during the quarter.

The imports of goods have increased by 6pc to $13.8bn during the Q1FY19 but it was mainly due to higher oil prices and subsequent import of petroleum products.

During July-September, the import bill for petroleum groups jumped by 40pc to $4.131bn.

The State Bank reported that the trade deficit (both, goods and services) rose to 8.81bn during the first quarter, compared to $8.59bn in the same period of last fiscal.

The government has introduced higher duties on imports of some food items and luxuries, but the impact of higher duties is yet to come.

However, the increasing oil prices have already jeopardised the government’s efforts to reduce the import bill.

Pakistani rupee’s downslide against the US dollar continued throughout the current calendar year, including the 8pc depreciation of rupee on October 9 to improve its exports but so far the outcome is the destabilisation of exchange rate; exports increased by 3.6pc in Q1FY19.

This destabilisation of exchange rate which drastically reduced the purchasing power of the local currency is set to significantly increase inflation in the country.

The State Bank has already taken steps to tackle the inflationary pressure through increasing the policy interest rate. In the last two monetary policies the State Bank cumulatively increased the interest rate by 200 basis points to 8.5pc.

Published in Dawn, October 23rd, 2018

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