The current account deficit during October was recorded at $166 million; and had the CSF money ($322 mn) not flown in, the gap would have been similar to what was registered in the previous month.
Data released by the State Bank of Pakistan show that imports grew by 6 percent year on year in the first four months, while the exports almost stagnated: That explains the 15 percent slippage in the trade balance.
International oil prices in November so far averaged at $106 per barrel as compared to $110 in the first four months of this fiscal year and $108 in the last fiscal year. With hopes of an improvement in Iran-US bilateral ties amidst slow global demand, oil prices may remain in lower band.
However, with four months current account gap at $1.4 billion, the full-year target of $1.9 billion is not achievable and that is why the IMF, in consultation with the Ministry of Finance, has recently revised the target to $3.2 billion. Now, with lower oil price projections, the revised target seems plausible to achieve. Nonetheless, we don have reserves enough to withstand any shock in commodity prices.
There is a need to materialize Euro Bond issue ($500 mn) and other international receipts in the financial account to finance the slippage of CAD projection by $1.3 billion. The reliance on all these flows cannot be understated as foreign investment is dying down despite the emergence of new government with a plethora of green field projects plans.
But, none of them have started pouring any foreign exchange as the FDI was at meagre $53 billion in Jul-Oct and picture this year is not different from the previous year. The PML-Ns pro-investment plans ought to start paying dividends to avert any shock. There are some lumpy payments in the offing; in November alone the government has to pay $ 720 million whereas the epic lender is not paying a dime before December end. While the budgeted flows in telecom sector including PTCL privatization proceed and 3G license is not happening in the second quarter.
No surprise therefore that the currency is in immense pressure, the reserves neither have the strength nor is the IMF allowing SBP to act as a stabilizer. There is urgent need to boost exports by giving adequate energy resources and other incentives. GSP plus is a good omen--analysts expect the size of exports to grow by a billion dollar over the time.
If the 1.2 percent year-on-year decline in imports shown under PBS data is any guide, SBPs imports should ease in the ensuing month. Be that as it may, import compression is the need of the hour. The recipe to self sustain is taking blend of measures to switch imports growth by exports.