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July-Aug current account deficit nearly doubles

KARACHI: Pakistan’s current account deficit swelled by more than 90 per cent in the first two months of the current fiscal year, reflecting an increasing pressure on the external front as inflows from all foreign sources are slowing.
Falling exports have widened the trade gap, pushing the government to take more steps to save foreign exchange reserves of over $22 billion.
The State Bank of Pakistan (SBP) on Thursday reported that the current account deficit rose to $1.316bn during July-August, 92pc higher as compared to $686m a year earlier.
The current account is the broadest measure of trade, covering not only the flow of goods and services but also investment flows. A deficit reflects Pakistan’s trade gap with the rest of the world and the shortfall between money paid out by the country and money coming in.
The trade of goods and services was also in deficit during the two-month period, at $439m and $235m, respectively. The trade deficit could be much higher if the oil price was at the level where it was two years ago. The country saved over $4bn in oil imports during the previous fiscal year.
Oil prices have plunged from well over $100 a barrel in mid-2014, falling below $30 a barrel at the start of this year before recovering to the $40-50 range at present.
Pakistan has been facing regular current account deficits despite record foreign exchange reserves and remittances. Analysts say massive trade gap due to continued decline in exports and almost disappearing foreign investment are the major reasons.
Independent economists and analysts believe foreign investment is falling because the government has failed to improve the country’s image in the world.
Foreign direct investment (FDI) coming into the country fell 53pc year-on-year in July-August. Besides, the outflow of profits and dividends by multinationals to their home countries — a process known as repatriation — is higher than the net FDI inflow.
According to recent estimates from the SBP, Pakistan would be paying around $5bn each year in foreign debt servicing until 2021. However, falling remittances could increase pressure on these repayments.
Remittances sent by Pakistanis working abroad fell 3pc year-on-year in July-August. Though the decline seems limited, the increasing loss of jobs in Saudi Arabia and other Arab countries could hit the inflows negatively in the coming months.



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