Pakistan’s current account deficit widened 89% in the first five months (Jul-Nov) of the current fiscal year 2017-18 (FY18), amounting to $6.64 billion compared with $3.51 billion in the same period of the previous year, according to data released by the State Bank of Pakistan (SBP) on Wednesday.
In November 2017 alone, the current account gap swelled $1.44 billion compared with $1.30 billion in October 2017.
Investors have shown concerns about the growing deficit after the country recorded a much higher-than-expected deficit of $12.4 billion (4% of gross domestic product – GDP) in the previous fiscal year that ended on June 2017. The deficit in FY16 was just $4.86 billion.
With the difference between exports and imports being the biggest determinant of the current account balance, a deficit or surplus reflects whether a country is a net borrower or net lender with respect to the rest of the world. To control the gap in imports and exports, the government in October enhanced regulatory duties by up to 350% on 356 essential and luxury goods that is expected to dent the rising import bill in coming months.
Last week, as per the anticipation of market observers, the government let the rupee lose about 4.67% of its value against the dollar.
This is expected to reduce imports while supporting exports thus eventually curtailing the growing current account deficit in the coming months.
Up until now, the government was reluctant to let the rupee lose its value against the dollar. Former finance minister Ishaq Dar was the biggest proponent of a stronger rupee for over four years, which analysts say significantly hurt the export sector of the country.
As a percentage of GDP, the deficit rose to 4.5% in the first five months of FY18 as opposed to 2.7% in the same period of previous year.
In Jul-Nov FY18, Pakistan exported goods worth $9.79 billion compared with exports valuing at $8.74 billion in the same period of last year, reflecting a year-on-year increase of 12%.
However, imports jumped much faster to $21.88 billion against $17.73 billion last year, up 23.4%.
The balance of trade in both goods and services in the five months was negative at $14.19 billion compared with $8.99 billion in the same period of previous year.
Worker remittances amounted to $8.02 billion in Jul-Nov FY18, up 1.26% from the corresponding period of previous year, when they totalled $7.92 billion.
Remittances make up almost half of the import bill of Pakistan and cover the deficit in the trade of goods account.
Pakistan is also facing low levels of foreign direct investment (FDI) in recent years. In fiscal year ended June 30, 2017, the FDI increased just 5% to $2.41 billion compared to $2.30 billion in the previous year.
According to the Board of Investment (BoI), the country received a record high FDI of $5.4 billion in FY08 but since then it has been struggling to touch even half of that milestone.