The curtain finally closed on the balance of payments for Pakistan with the current account deficit clocking in at a whopping $4.5 billion for FY12 against a surplus of $214 million in FY11. In fact, the April-June quarter was particularly hard-hitting for the country, recording the worst current account deficit amongst all the four quarters at $1.5 billion. Economic managers and analysts had seen this coming with the trade balance of the country leaving a lot to be desired for most of the months of the outgoing fiscal year. While exports decreased by about 3 percent in FY12 relative to the previous year, imports increased substantially more by around 12 percent. Decrease in global prices of cotton, a steady export item from Pakistan and a volumetric decline in exports of value-added goods have been hitting hard at the countrys exports. On average, cotton prices have fallen by over 30 percent globally during FY12 relative to FY11. At the same time, oil has taken its toll on the import side, especially in terms of prices. Internationally oil prices increased by about 20 percent on an average of year-on-year basis in FY12. Overall, the trade deficit in FY12 was enormously higher by around $5 billion compared to the previous fiscal year. Workers remittances continued to be the only saving grace, rising by 18 percent on a year-on-year basis in FY12. There are concerns, however, that these inflows may plateau out soon, and question marks over how long the growing momentum in these would continue. On the capital account side, financial inflows also painted a somber picture, with financial account flows down by a whopping 36 percent in FY12 on a year-on-year basis, and FDI inflows in FY12 neatly slashed into half of where they stood at in FY11. Portfolio investments appeared to have taken a reverse journey with outflows of $130 million in FY12 compared to inflows of $345 million in FY11. In June alone, portfolio investments waved goodbye to $55 million from this category. This year had also been a challenging one for Pakistan, as substantial repayment to the IMF for their SBA programme had to be made. SBPs gross reserves were down by nearly $4.7 billion in FY12 relative to FY11. The effect of the decline in reserves has been evident from the rupee-dollar exchange rates which had worsened considerably in recent weeks. Going forward, a slowing global economy means demand for Pakistans exports will likely take a hit. At the same time, a global slowdown has also impacted commodity prices which have started receding recently. In terms of oil imports, this spells good news for Pakistan; in terms of cotton and rice exports, it presents some concerns. At the same time, substantial repayments to the IMF are also scheduled for FY13. However, thawing Pak-US relations with respect to the reopening of NATO supply routes brings some promise in terms of resumption of CSF payments to the country, as well as the likelihood of reinstating some programme with the IMF. FY13 will, indeed, be an interesting year for the balance of payments of Pakistan.
Comments
Comments are closed.