April saw Pakistan’s current account balance improve by about 36 percent month-on-month. Figures for 10 months ending April 2013 also show a betterment of nearly 60 percent. Yet, questions loom large about the quality of this improvement.
Data released by State Bank of Pakistan (SBP) shows that current account deficit stood at $1.41 billion in the 10MFY13, as compared to $3.35 billion in the same period last year. This is about 0.6 percent of the GDP, which implies that the full year FY13 number may well be within the range of 0-1 percent projected by the SBP.
Considering that the current account deficit was two percent of the GDP in fiscal year 2012, this is a substantial achievement – one which largely comes on the back of CSF inflows that pumped up the services export account in the first half of the current fiscal year.
While the detailed numbers for April are not available, one can gauge the contribution of CSF to overall current account balance by the fact that government exported services in the form of military units and agencies yielded $1.99 billion in the nine months ending March.
With further CSF flows unlikely to arrive before June, inflows under this account will largely remain flat in the remaining two months. Much is therefore left to remittances that have continued to provide the much needed support.
In the meanwhile, trade numbers have nothing much to boast about. Trade deficit is down three percent, largely because of a mild drop in import figures than any real improvement in exports.
Given that reliance on CSF inflows in the long term would be foolish, the key items in current account management are trade of goods and services and remittances. The previous political regime had done a great job kick starting the formal remittance scheme.
It’s now up to the new regime to ensure that remittance growth stays on track. But kick starting the country’s exports is even more important.
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CURRENT A/C BALANCE - KEY ITEMS
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$ (mn) Apr-13 Mar-13 MoM 10M 10M YoY
chg FY13 FY12 chg
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C/A balance -354 -549 -36% -1,418 -3,354 -58%
Trade balance -1,243 -1,208 3% -12,541 -12,867 -3%
Services - credit * 407 440 -8% 5,742 4,249 35%
Remiitances 1,216 1,119 9% 11,570 10,877 6%
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Source: SBP * Includes CSF inflows
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