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Current account deficit swells to $9.09bn in July-December in Pakistan

  • Sun Online Desk
  • 25th January, 2022 08:01:35 PM
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KARACHI: The country’s current account deficit surpassed $9 billion in the first half of the ongoing fiscal year, accounting for 5.7 per cent of the gross domestic product, the State Bank of Pakistan (SBP) data showed on Saturday.

The current account deficit — which measures the flow of goods, services and investments into and out of the country — is well ahead of the government’s revised target of 4pc of GDP for the current fiscal year.

The SBP said the current account deficit of $9.09bn was “led by a significant terms of trade shock amid ongoing economic recovery”.

The deficit was broadly unchanged at $1.93bn in December from $1.89bn in November 21.

The July-December deficit stands in total contrast to a surplus of $1.247bn (0.9pc of GDP) a year ago. However, that six-month surplus also turned to be a deficit of $1.916bn, or 0.6pc of GDP, by the end of the 2020-21 fiscal year.
The July-December current account deficit was largely fuelled by a rising import bill, which skyrocketed 53pc to $41.66bn during the same period.

That averaged to $6.9bn trade deficit per month compared to $4.497bn in the year-ago period.

The SBP data showed that the current account deficit in the second quarter (October to December) of this fiscal year was much higher than the previous quarter, suggesting that the government is willing to keep the foreign exchange reserves equal to minimum of three months of import bills.

The second-quarter deficit stood at $5.57bn compared to $3.56bn in the first quarter.

The government and the State Bank have taken several measures to curtail the import bill but to no avail.

Along with trade and industry, the government also believes that the higher import bill shows higher economic activity in the country, particularly the exports sector. However, data for the six-month period shows exports of goods and services at $18.65bn compared to $41.66bn imports.

As a result, the trade deficit nearly doubled to $23bn from $12.33bn in the same period a year ago.

During the last two fiscal years (ie 2019-20 and 2020-21), the current account deficit amounted to 1.7pc and 0.6pc of GDP, respectively.

With higher borrowings to meet external obligations, the country seems to head for a debt trap as it has failed to increase exports on a par with surging imports.

The government links the rising import bill to higher machinery imports, a sign of growth in the economy.

However, analysts and researchers believe that the current account deficit can create much bigger problems than the expected economic growth.

 

Source: Dawn