KARACHI: The Current Account Deficit (CAD) of the country started declining from the first quarter 2018-19 and stood at $3.6 billion compared to $3.7 billion in the same period last year.
Finance Minister Asad Umer had claimed in his speech at the Pakistan Stock Exchange (PSX) last Saturday that the current account deficit will estimate 33% drop to $12 billion in current fiscal year 2019, compared to record high of $18.9 billion recorded in 2017-18.
He further claimed, “the current account deficit will further drop in fiscal year 2019-20 and 2020-21 will be a break-even year for the economy.”
According to the SBP, the exports of the country stood at $5.884 billion in July-Sept quarter, which is contrary to the Pakistan Bureau of Statistic (FBS) exports data of $5.390 billion. Similarly, the imports’ figure is also slightly higher and stood at $13.756 billion compared to the FBS data of $14.260 billion in July-Sept period.
In first quarter of the current fiscal year, CAD declined by 2.7 per cent.
The central bank has depreciated the local currency (Pak Rupee) in the interbank market by around 8 per cent in last week of September and it is trading at Rs 133.70. On the other hand, the government had also enhanced the regulatory duties on 571 products 15-day back to overcome the rising imports.
The analyst of a brokerage house said, “the government has started gaining results of the measures taken to control the rising imports of the country.” The finance minister had announced to get financial help from the International Monetary Fund (IMF). The IMF delegation will visit Pakistan in first week of November this year. The entire negotiation process of the bailout can take 4 to 6 weeks.
According to Islamabad sources, the Prime Minister Imran Khan is going to Saudi Arabia today (Oct 23) to discuss the trade deals with Saudi King. The sources said that along with IMF money, funding from other friendly countries may also be utilized given IMF’s letter of comfort. The official said Pakistan’s government may sign deal to import oil from Saudi Arabia on deferred payments.
The IMF program will come with specific external, fiscal and monetary measures and it will slowdown GDP growth to around 4.0-4.5 per cent (compared to GDP growth of 5.8% in FY18)
The State Bank of Pakistan (SBP) has already raised interest rates by 275 basis points to 8.5 per cent in calendar year to date, while it may further enhance 150-200 basis points in the next monetary policy meeting.
During the last fiscal year, the CAD indicated a poor financial management of the previous government of Nawaz Sharif as it failed to overcome the rising imports, the market experts said.
The rupee had been devalued by 20 per cent during last fiscal year. The central bank devalued Pak Rupee by 5 per cent on December 8, 2017 to Rs 110, 4.5% to Rs 115 on March 20, 2018 and 5 per cent to Rs 121. During the last 10 years, Pak Rupee has devalued annually by around 5 per cent, said Topline Securities Report.
The current A/C deficit is widening only because of rising country’s imports bills and lower inflows of foreign direct investment (FDI).
Despite rising CAD, the foreign exchange (FX) reserves of the State Bank have remained under pressure and down to $8.089 billion last Thursday, which covers only 1.5 months of imports bills. Total reserves of the country are stood at $14.614 billion.
The import bills had touched $55.8 billion in last fiscal year which is more than double of the total export’s inflows of $24.772 billion, the SBP’s data said.