The current account numbers in October FY12 may give more reasons for government officials to cheer as the current account deficit in the outgoing month stood at $220 million, compared to $1.034 billion in the preceding month (September). The ministry of finance has maintained that according to its projections, the current account deficit for FY12 will remain below $2 billion, even though the IMFs projections are far away at $3.5 billion deficit for the year. While the going seems easy for now, analysts and ex-finance ministers see an impending doom ahead. Looking at the latest BoP figures released by the SBP in October FY12, the trade balance did depict a month-on-month improvement. This was helped by a surge in exports and a decline in imports bill month on month. Plausibly, the fall in imports is attributable to a hangover of oil payments made in the previous months, which may have caused a lesser outlay in the month gone by. But for 4MFY12, the trade balance deteriorated year-on-year, showing that FY12 may not be as much a pleaser as FY11 was. Rice and cotton prices, two major drivers of a satisfying trade account in the previous fiscal year, are expected to remain subdued in FY12 and hence, not much respite is expected from that end. Similarly, oil prices are sitting above the $100 per barrel mark with signs of a decline not apparent for the coming few months. As has been happening for the past several months, the countrys current account position has been helped tremendously by workers remittances; the 4MFY12 year-on-year and October 2011 month-on-month increases may provide the Finmin with a much needed breather. However, the financial account telltales are not much of a cheer. An outflow of $655 million in October FY12 alone brought the 4MFY12 financial account position from that of net inflows to net outflows. A break-up of the same shows dwindling direct investments-which decreased by about 28 percent year-on-year in 4MFY12 and a steep decline in portfolio investments-which fell from an inflow of $102 million in 4MFY11 to an outflow of $101 million in 4MFY12. But the biggest decline in the financial accounts came from other investments, showing an outflow of about $0.5 billion in October this year. This is primarily attributable to a sizeable outflow from banks. Khalid Iqbal, Director Research at Invest and Finance Securities, explains the outflow from banks as "occurring due to significant debt repayments, which had even caused the currency to come under pressure recently". With the pressures on the current and financial account quite obvious, strain falls on the central banks reserves. The fall in SBPs gross reserves in October 2011 of about $0.5 billion vouches for that. In fact, Khalid Iqbals caveats that this situation may be a trailer of an impending scenario with the likelihood of the currency coming under further pressure as a further depletion of reserves probably on the cards. Returning to another potential IMF programme may not be as easy for the officials prospectively, owing to precedence of failed policy reforms and also due to the financial woes of the West itself. Its about time the authorities wipe the optimistic smiles off their faces and get down to work in preventing a possible BoP crisis.
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Key items, balance of payments - Oct FY12
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Jul-Oct
(million $) Oct FY12 Sep FY12 FY12 FY11
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Current account balance -220 -1034 -1555 -541
Exports 1986 1884 8119 7106
Imports 3133 3470 13400 10879
Workers remittances 1018 890 4315 3501
Financial account -655 153 -117 689
Direct investments 58 170 340 471
Portfolio investments -55 1 -101 102
Other investments -532 -33 -205 -343
SBP gross reserves 15095 15614 15095 14354
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Source: SBP
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