Current account deficit crosses $7 billion

Country’s current account deficit widened by two billion dollars to 4.8 percent of the gross domestic product (GDP) and all time high level of seven billion dollars during the 2007 fiscal year as compared to around five billion dollars during the 2006 fiscal, mainly due to slow down in exports.
For the first time in the history of the Pakistan, current account deficit has reached 4.8 percent of the GDP against the target of 4.3 percent for 2007, showing the overall position of the country’s inflows and outflows of payments.
Officials statistics revealed on Saturday that during the 2007 fiscal year, the country has faced 2.026 billion dollars worth current account deficit, as it has reached at 7.016 billion dollars at the end of the last fiscal previously stood at 4.99 billion dollars during the 2006 fiscal year.
“Increase in current account deficit has been contributed by trade, services and income deficit, besides huge payments of interest and dividends during the 2007 fiscal year,” analysts said.
They said the government had failed to achieve the export target of 18.6 billion dollars, besides increasing imports. As a result, the country during last fiscal year faced a trade deficit of over 9.87 billion dollars (as per the balance of payment).
Statistics indicated that principal factors responsible for the widening of current account deficit included a widening trade deficit by 9.87 billion dollars, services deficit by 4.125 billion dollars and tremendous raise of 3.574 billion dollars in income deficit.
The overall deficit, including trade, services and income stood at 17.569 billion dollars against the current account transfers of 10.638 billion dollars. During the 2007 fiscal, the country’s altogether income from abroad stood at 937 million dollars as compared to 4.511 billion-dollar payments of income to the overseas.
In addition, services sector payments reached 8.25 billion dollars against the receipt of 4.125 billion dollars in service account. The statistics show the State Bank of Pakistan (SBP) reserves increased by 2.568 billion dollars to 13.333 billion dollars till June 30 from 10.765 billion dollars.
Current account deficit without official transfers climbed to 7.516 billion dollars during the last fiscal from 5.671 billion dollars at the end of the 2006 fiscal year, depicting an increase of 1.845 billion dollars during the last fiscal.
“The major reason behind the rising current account deficit is failure in achieving export target, as the country has missed export target by over 1.6 billion dollars and as compared to it, the current account deficit also witnessed two billion dollars during 2007,” said a leading economist Muzammil Aslam.
Had the export target been achieved, the current account deficit would not have exceeded the previous year’s figures, he added. He said that during the 11 months of the last fiscal, current account deficit stood at 7.4 billion dollars, but the inflows of international aid in June had reduced the current account deficit.
Due to high inflows of foreign direct investment (FDI), the county’s total foreign reserves had touched all time high level of 15 billion dollar-mark, he added. “Now we are back to the position of 1999 as our fiscal and current account deficit reached 10 percent of the GDP,” he said.
It may be mentioned here that the State Bank of Pakistan (SBP) was already aware the situation as it had predicted in its third quarterly report that the current account deficit would be raised to seven billion dollars during the 2007 fiscal.

Copyright Business Recorder, 2007