November FY12 reiterated fears about the worsening current account situation of the country. Clocking in at a deficit of $2.1 billion, the July-November FY12 deficit was a whopping $1.5 billion higher than that in the same period of last year. As for November FY12, the current account deficit was nearly twice that in October FY12, indicating a rapidly deteriorating situation. A worsening trade balance primarily led the slump in the current account. Even though imports declined month on month in November 2011 by over 6 percent while exports declined by 4 percent for the month, the trade deficit for 5MFY12 was worse by $1.7 billion relative to 5MFY11. Declining commodity prices are one factor for Pakistans dwindling exports. At the same time, dwindling prospects for the eurozone economies mean that not much promise can be expected from the export side in the coming months. On the import side, higher oil prices towards the beginning of this fiscal year have caused much damage to the import bill, which surged by over 20 percent in 5MFY12 versus the same period of last year. However, oil prices are expected to recede, going forward, owing majorly to a slowing down of the eurozone economies, showing a very thin ray of hope in the otherwise worrying current account scenario. Even workers remittances, which normally are a bright note for Pakistans current account, dropped month on month in November 2011 by about 9 percent, though for 5MFY12 net remittances at $5.2 billion were taller by nearly $800 million relative to 5MFY11. As for the financial account, while November 2011 showed marginal improvement on a month-on-month basis as far as the overall financial account, FDI flows and portfolio investments are concerned, 5MFY12, overall, did not offer any positive signs. The financial account stood at $169 million in 5MFY12, depleting by about $400 million relative to the same period of last year. However, on a month-on-month note, as opposed an outflow of over $600 million in October this year, there were inflows of $230 million in November in the financial account. As for direct investments, though the inflow increased marginally in November 2011 versus the previous month, inflows were down by about $170 million, year on year, in 5MFY12. Similarly, portfolio investments saw an outflow of nearly $100 million in July-November FY12 as opposed to an inflow of around $180 million, though November saw an inflow of $2 million against an outflow of $55 million in October this year. Overall, with the current account and financial account in a tight spot, the countrys reserves are bearing the brunt. The reserves fell by about $0.5 billion in November FY12 from the October FY12 levels. A similar month on month decline was also seen in the last month. This spells some serious woes for the Finance Ministry, as further depletion of reserves appears quite likely, as well as for the SBP which will have to use some monetary policy tools to avert the looming crisis. All in all, the rupee may be seen shedding off some value against the dollar. One hopes the situation turns around before any drastic measure needs to be taken, though the latter seems to be more realistic.
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Key items, balance of payments - Nov FY12
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Jul-Nov
(mn $) Nov FY12 Oct FY12 FY12 FY11
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Current account balance (478) (287) (2,104) (589)
Exports 1,926 2,007 10,075 9,037
Imports 2,995 3,204 16,499 13,691
Workers remittances 925 1,018 5,240 4,428
Financial account 234 (603) 169 563
Direct investments 84 60 408 577
Portfolio investments 2 (55) (98) 178
SBP gross reserves 14,583 15,095 14,583 14,125
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Source: SBP
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