KARACHI: Pakistan’s current account deficit widened to $18 billion or 5.7 percent of gross domestic product during the last fiscal year of 2017/18, putting rupee at risk of a further big fall and fanning fears about the sustainability of the economic growth.
The State Bank of Pakistan (SBP) said the current account deficit amounted to $12.6 billion or 4.1 percent of GDP in FY2017. Economist Ashfaque Khan said the new government would need to find a way to finance the gap.
“… (It may) go to the IMF (International Monetary Fund) to obtain a fresh bailout in late August or in early September,” Khan said. His calculation for the current account deficit for the current fiscal year is $21.2 billion. “The external financing requirement is expected to be more than $31 billion,” he added.
SBP data showed that trade deficit widened to $31.074 billion in FY2018 from $26.68 billion in FY2017 as exports of goods recovered to $24.772 billion from $22.003 billion, while imports rose to $55.846 billion from $48.683 billion.
The current account deficit narrowed to $1.8 billion in June from two billion dollars in May. The full-year current account deficit was higher than the State Bank’s forecast for FY2018. The SBP projected the deficit in the range of four to five percent of GDP during the last fiscal year.
Analysts said the deficit has reached the unsustainable level especially when the economy is burning through around $1.5 billion a month and foreign exchange reserves fell to cover less than two months of imports. The central bank’s reserves stood at $9 billion as of July 13.
Mohammad Sohail, chief executive officer of Topline Securities said the current account deficit was higher than the initial estimates. “Government should take steps to curtail imports,” Sohail said.
The deteriorating external current account pushed the local currency lower by a cumulative 20 percent since December last year. SBP data showed that the country paid $4.11 billion in debt repayments during the last fiscal year as compared to $4.374 billion a year ago.
IMF projected that Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in fiscal 2018. Meager growth in workers’ remittances and foreign direct investment and increasing foreign debts are aggravating the balance of payments position.