Services trade deficit surges to $1.639 billion

The performance of services sector trade is gradually deteriorating as a notable rise of 184 percent has been registered in services trade deficit during the first seven months of current fiscal year. Economists attributed high deficit to massive decline in services exports and increase in import, besides slow foreign inflows, especially Coalition Support Fund.
They said rising shipping bill is also a chief reason of higher deficit as the country has only one national flag carrier ie Pakistan National Shipping Corporation (PNSC) which is unable to cater for requirement of export/import. Followed by high services sector deficit, the country witnessed a current account deficit of $2.633 billion in July-January of current fiscal year as compared to $96 million in the same period of last fiscal year.
According to the State Bank of Pakistan, services sector trade statistics are again deteriorating and deficit of services trade, which was on decline during last fiscal year, has registered an increased of 184 percent during first seven months (July-January) of fiscal year 2011-12.
With current surge, the services sector deficit mounted to $1.639 billion during July-January of FY12 compared with $577 million in the corresponding period of last fiscal year, depicting an increase of $1.062 billion. The detailed analysis revealed that exports of service sector continued to decline, while imports witnessed growth, resulting in high deficit. During the period under review, exports of services sector posted a decline of 21 percent or $768 million. The services sector exports declined to $2.9 billion in first seven months of current fiscal year compared with $3.66 billion in the same period of last fiscal year.
However, services sector imports registered a growth of 7 percent during the period under review. Overall services sector imports surged to $4.54 billion during July-January of FY12 against imports of $4.24 billion in the corresponding period of FY11, depicting an increase of $294 million. Month on month basis, services deficit in January 2011 stood at $290 million with $315 million exports and $605 million imports.
Analysts said that a notable increase of 184 percent in services deficit is a matter of concern and policymakers should develop a long-term policy to curtail the higher deficit of services deficit. "In the current economic scenario, when foreign inflows are on decline and current account deficit is rising, the country will be compelled to utilise its reserves for foreign payments. They said high payments on account of government service, transportation, travel and information technology are major contributors to services trade deficit.
The country earned $910 billion on account of transportation services, $196 million from travel, $116 million from communication, $15 million from construction services, $146 million from Information Technology (IT), $35 million from financial services and $1.013 billion earned on account of government services during July-January of FY12.
On the other hand, transportation payments stood at $2.124 billion, travel $733 million, communication $93 million, construction $48 million, insurance $150 million, financial sector $61 million and IT sector payments stood at $92 million during the period under review. In addition, some $75 million was paid on account of royalties and $470 million for government services.