Current account deficit declines by 48 percent

Pakistan's current account deficit narrowed down significantly by 48 percent during the first half of the current fiscal year (FY16) supported by modest increase in remittances, continuous Coalition Support Fund (CSF) inflows and lower goods trade deficit. According to State Bank of Pakistan (SBP), country's current account posted a $1.267 billion deficit during July-December of FY16 compared to $2.463 billion in corresponding period of last fiscal year (FY15), depicting a decline of $1.196 billion.
Economists said that concerns on Pakistan's external sector had been muted and current account deficit for this fiscal year was likely to be lower than previous year. They said that lower trade deficit, massive increase in home remittances and higher CSF inflows have largely contributed to lowering the current account deficit.
Workers' remittances have surged by 6 percent to reach $9.735 billion in the first six months (July to December) of this fiscal year, while trade deficit declined by $864 million during the period under review. Similarly, the country received CSF inflows of US $713 million in first half of FY16.
The SBP already expecting that lower trade deficit and higher foreign inflows together with lower freight charges would help contain current account deficit around 1.0 percent of the GDP end of this fiscal year and the financing of this deficit may not be an issue due to higher expected inflows, on account of project loans from China, and from international financial institutions (IFIs). In addition, the pace of hike in workers' remittances is likely to be modest and likely to comfortably surpass the target of $19 billion for the year.
According to SBP, cumulative deficit of trade, services and income stood at $12.548 billion in first half of current fiscal year as against $12.777 billion in the same period of last fiscal year. During the period under review, the country's overall goods deficit stood at $9.07 billion with $19.89 billion imports and some $10.82 billion exports. Services sector deficit stood at $1.01 billion with $2.67 billion exports and $3.78 billion imports.
Similarly, income sector outflows stood at $2.73 billion and inflows at $274 million, depicting a deficit of $2.45billion during July-December of FY16. Analysts said that the current account benefited from the fact that price of commodities which Pakistan imports (like oil, metals, fertilisers and palm oil) fell sharply than the prices of commodities which Pakistan exports (like rice and cotton). Therefore, the decline in imports was much stronger than the decline in exports.