That the current account gap fell by $3.06 billion in the first ten months of current fiscal year isn surprising at all.
With the high base effect working in Pakistans favour, the trade gap has been narrowing. According to central bank data trade deficit decreased by 18 percent year-on-year during the period; though mostly due to 6 percent drop in imports than due to export growth.
Export growth remained sluggish - growing just 2 percent over the year ago period. While this is an upsetting piece of information on its own, the overall external gap picture isn that worrying as such at the moment.
Pakistans oil import bill has been on a decline compared to the year ago period. And crude oils performance in the month-to-date implies further softening of the imports. That and higher worker remittances can help keep the gap within manageable limits.
In fact, there might be a current account surplus in May, as Invisor Securities pointed out, on account of $468 million received from the CSF.
In another interesting development, gradual decline in external imbalance has brought it much lower than the fiscal gap. This implies that while the private sector is trying to save more, public sector expenses are on the rise, or in other words, domestic savings continue to feed public expenditure.
On a related note, when national savings, as a percentage of GDP, increased in fiscal year 2009 from its bottom of 13.5 percent in fiscal year 2008, the savings-investment (S-I) gap squeezed for the better.
The S-I gap had contracted to 5.4 percent in 2009 from 8.5 percent in 2008. This year the difference might narrow further, though more because of lower investments, than due to higher national savings.
This brings home the age-old notion of the need to increase Pakistans savings rate, to bring it parallel to its regional peers like India where savings rate approximately hovers around 35-38 percent.
There is a clear case to formulate policies to spur savings at home. The currency-in-circulation, which is as high as 23 percent versus 14-15 percent in India ought to be rationalized.
Policy makers might not be able to lure undocumented money, including drug money, into the system, but quick steps should be taken to bring rural economy into the net to ensure a bigger pool of savings.