Current account deficit rises to $2.9 billion: Car imports to blame
Current account deficit rises to $2.9 billion By Shahid Iqbal
KARACHI, Feb 6: The ballooning trade deficit has sent a warning signal to the country’s balance of payments position as it showed a negative figure of $2.9 billion in just six months, which is 240 per cent higher during the corresponding period of last year.
Latest official figures showed that Pakistan would face a tough situation mainly due to unchecked high growth in imports and marginal increase in exports.
During July-December 2005-06, the imports rose to $11.877 billion compared to $7.931 billion of exports, which pushed the trade deficit to $3.964 billion.
The current account deficit showed a negative 2.903 billion during the six months as compared to just $805 billion during the corresponding period of the previous year. It could be around $6 billion by the end of the current fiscal year ending June 2006.
Further details showed that the balance of goods and services carry a higher figure of negative $5.942 which means more money went out than came through the services sector.
The economic managers of the government have been showing satisfaction that the current account was manageable. The former governor of the State Bank, Dr. Ishrat Husain, had also endorsed the idea that the current account deficit was manageable despite a soaring negative figure.
However, some analysts and independent economists expressed concerns that the balance could pose a threat to the economic stability.
“The economic managers are making a temporary arrangement. They would meet the deficit with remittances and privatization proceeds, but the source will exhaust in one or two years,” said an analyst.
The country received $2.055 billion as remittances sent by the overseas Pakistani workers in the six months, while the government expects that the total remittances would reach $4.1 billion by the end of the fiscal year.
The other source is the inflow of foreign direct investment (FDI), which also crossed $1 billion mark during the same period and a total FDI could reach over $2 billion till the end of the financial year.
“Despite all these sources which could meet the challenge of the ever-increasing current account deficit, the figure is alarming,” said the analyst.
The government argues that the trade deficit was the main force behind the rising current account deficit and oil price hike was the real evil, which was pushing the trade deficit to the record high.
Trade deficit could touché the $10 billion mark at the end of the current financial year. Analysts do not accept the government’s reasoning for the increase in trade deficit. They said it was not only the oil prices but the motor vehicles’ imports, which surpassed the machinery imports, putting pressure on the external account of the country.
They said import of food items was another area of concern as the food price hike compelled the government to allow import of wheat both in the public as well as the private sector. “Now the sugar prices have gone up fast and its import would again put a burden on the country’s trade balance,” said the analyst.
Experts expressed concern that the widening current account imbalance could put pressure on the State Bank’s foreign exchange reserves. The SBP’s reserves have become a guarantee for the economic stability and exchange rate for last several years. Prior to these reserves, the country lost its ability to pay back debt and debt services. This scenario had badly damaged the country’s economic stability.
KARACHI, Feb 6: The ballooning trade deficit has sent a warning signal to the country’s balance of payments position as it showed a negative figure of $2.9 billion in just six months, which is 240 per cent higher during the corresponding period of last year.
Latest official figures showed that Pakistan would face a tough situation mainly due to unchecked high growth in imports and marginal increase in exports.
During July-December 2005-06, the imports rose to $11.877 billion compared to $7.931 billion of exports, which pushed the trade deficit to $3.964 billion.
The current account deficit showed a negative 2.903 billion during the six months as compared to just $805 billion during the corresponding period of the previous year. It could be around $6 billion by the end of the current fiscal year ending June 2006.
Further details showed that the balance of goods and services carry a higher figure of negative $5.942 which means more money went out than came through the services sector.
The economic managers of the government have been showing satisfaction that the current account was manageable. The former governor of the State Bank, Dr. Ishrat Husain, had also endorsed the idea that the current account deficit was manageable despite a soaring negative figure.
However, some analysts and independent economists expressed concerns that the balance could pose a threat to the economic stability.
“The economic managers are making a temporary arrangement. They would meet the deficit with remittances and privatization proceeds, but the source will exhaust in one or two years,” said an analyst.
The country received $2.055 billion as remittances sent by the overseas Pakistani workers in the six months, while the government expects that the total remittances would reach $4.1 billion by the end of the fiscal year.
The other source is the inflow of foreign direct investment (FDI), which also crossed $1 billion mark during the same period and a total FDI could reach over $2 billion till the end of the financial year.
“Despite all these sources which could meet the challenge of the ever-increasing current account deficit, the figure is alarming,” said the analyst.
The government argues that the trade deficit was the main force behind the rising current account deficit and oil price hike was the real evil, which was pushing the trade deficit to the record high.
Trade deficit could touché the $10 billion mark at the end of the current financial year. Analysts do not accept the government’s reasoning for the increase in trade deficit. They said it was not only the oil prices but the motor vehicles’ imports, which surpassed the machinery imports, putting pressure on the external account of the country.
They said import of food items was another area of concern as the food price hike compelled the government to allow import of wheat both in the public as well as the private sector. “Now the sugar prices have gone up fast and its import would again put a burden on the country’s trade balance,” said the analyst.
Experts expressed concern that the widening current account imbalance could put pressure on the State Bank’s foreign exchange reserves. The SBP’s reserves have become a guarantee for the economic stability and exchange rate for last several years. Prior to these reserves, the country lost its ability to pay back debt and debt services. This scenario had badly damaged the country’s economic stability.
posted by India News Watch at 4:28 AM
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