In Focus: C/A Deficit expands to USD6.9bn (24122008)

Pakistan’s current account deficit has now soured by 44 percent to USD 6.8bn during the first 5 months of current fiscal year. The underlying reason was a much higher import bill which soared by 22 percent. On the other hand, exports continue to grow steadily as it increased by 12 percent during the period. Some support also came in from worker’s remittances which grew by 14 percent to USD 2.9bn.
Deficit narrows down in November
Despite a 44 percent increase during first 5 months, C/A deficit has come down significantly during the month of November. The balance peaked in October touching deficit of USD 2.2bn, now come down by 63 percent to USD 810mn in November. Moreover, imports registered a slowdown during the month as they declined by 27 percent. Conversely, exports were better during November increasing by 12 percent on M-o-M basis.
Export growth rapidly diminishing
Though imports have slowed down a bit, export growth has been witnessing a continuous downturn during current year. The textile group which constitutes 54 percent of our total export proceeds has been witnessing constant deterioration as it has fallen down to growth level of less than 1 percent. Support in export growth has come primarily from food and manufactured group, some extent owing to massive growth in cement export (146 percent); however its contribution in overall export is still minor (4 percent).
Declining oil price bring some stability in import bill
Import bill for petroleum group has seen a decline of 32 percent during November when compared to previous month. However, it still remains the major driver of overall imports and year to date growth of 63 percent in crude and petroleum imports is still significantly high. Other than oil, machinery group is now showing negligent growth while transport segment is showing YTD decline of 7 percent owing to slowdown in automobile demand.
Capital inflows still dried
Though situation is now not as severe as it was before IMF funding; the country is still fairly dry on capital inflows. Foreign direct investments have also started to decline while privatization plan of major entities is expected to remain hazy. On the other hand, portfolio investment outflows are expected to further deteriorate the situation. We believe, however, that if current account deficit is somewhat contained due to declining imports, the country would be in a better state to meet IMF reserve requirement of USD5.4 billion.