The State Bank of Pakistan has said that funding to modest current account deficit could be challenging owing to fall in financial and capital inflows. On external front, although the current account deficit is expected to be in the range of 1.5 to 2.5 percent of GDP, there is an upward bias to this prediction, says SBP's second quarterly report released here on Tuesday.
"Given the fall in financial and capital inflows, funding this modest current account deficit could be challenging and market players are increasingly concerned about whether the envisaged foreign inflows will materialise in time," it added.
The report said that bulk of the increase in the current account deficit was due to widening of the trade deficit; increase in the services account deficit also contributed to the widening of deficit in the current account during first half of FY12. Services account deficit increased to $1.3 billion during H1FY12 compared to $0.3 billion during the same period last year. This increase in the deficit was due to: (1) the absence of inflows under the coalition support fund (CSF); and (2) increase in outflows for travel services, the report said.
"Against $743.0 million in H1FY11, Pakistan has not received any inflow under CSF in the current fiscal year," the report revealed. Current transfers continued to be the only source of comfort for the external sector, posting YoY growth of 9.7 percent during July-December FY12. Within current transfers, workers' remittances recorded a healthy growth of 19.5 percent on top of 16.8 percent growth recorded during the same period of the previous year.
According to monthly data, workers' remittances dropped sharply in September 2011, before recovering in the following months. The workers' remittances dropped sharply by 32.0 percent MoM in September 2011, contributing to the widening of current account deficit. The fall in remittances owed to seasonal slowdown, delays in payment of commission to authorised moneychangers and due to speculative pressures in the forex market.