And so it begins, the quest to balance the countrys payments. Just as one thought that the current account has somewhat stabilised, the floods came along - making the job of economic forecasters even more complicated.
Central banks data show that Pakistans external gap slid 1.5 percent year-on-year in July. On a month-on-month basis, however, current account deficit rose 44 percent, from $441 million in June to $635 million in July, as foreign currency inflows under FCA Residents dropped by $107 million over June, while worker remittances eased by some $50 million.
Does this mean that the external gap would continue to bloat on a month-on-month basis in the quarters ahead? Well, the answer isn exact - chiefly because there are a number of exogenous factors in the equation.
In a top to bottom analysis of the balance-of-payment, there are reasons to believe that the trade gap would rise significantly in the months to come.
About 4 million acres of cropped area has been affected by the floods, according to the NDMA, which means that additional cotton and other food-related imports are needed to plug the loss incurred from the floods.
These include ballpark estimates, based on preliminary cotton loss data, of about $1.5 billion worth of additional cotton imports. Then again, for lack of exact flood damage, these are basically numerical conjectures, which could be far off from the reality, if and when the damage assessment is finalised.
Hopefully, if the promised foreign aid and other relief grants materialise, the trade and income gap could be partially offset by a higher current transfer credits. However, keeping in mind the dicey history of such inflows, one can only cross fingers in anticipation at the moment.
Three things, therefore, hold the key to improvement in Pakistans current account. One, remittances; the government, the banks and the central bank should step up their efforts furthermore to attract remittances on a war footing.
And knowing that a handsome amount of the inbound workers money goes to the labourers families, now displaced by the flood, attracting higher remittances shouldn be a difficult call.
The second key thing is support from the international community, which in the words of the IMF "will be critical" in lifting Pakistan out of this new crisis.
Lastly, a trade policy that appropriately reflects the post-flood reality. In a sense, the delay in the much-awaited trade policy has worked in favour of the commerce ministry, as they can now better tweak the policy in accordance with the post-flood requirements.
A quick but measured policy stance is now needed by the commerce ministry to help stall any haywire movement in the external account.
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