By Shahid Iqbal
KARACHI: The current account deficit in the first two months of this fiscal year took a difficult shape as it widened to almost half of the entire deficit of FY14.
The State Bank of Pakistan reported on Friday that the current account gap for July-August FY15 widened to $1.372 billion compared to $580m in the same period last year. In FY14, the total deficit was $2.971 billion.
The last month was slightly better than July as deficit declined to $599m compared to $773m in July. However, the trend shows that the current account deficit could be a serious problem for a government already facing a number of challenges.
Imbalances on account of goods and services rose to minus $4.568bn in the two months of FY15 which was 40pc more than the previous year.
Goods and services exports during the two months stood at $4.790bn while imports stood at $9.358bn. It shows that import of goods and services was 49pc higher than exports.
Exports dropped during the two months, but still not enough to bring the current account deficit to this level. It is the import of goods compared to exports which created serious imbalances. Only goods import during the two months was 110pc higher than goods exports.
What is more concerning is the flood which has vastly damaged cotton and rice; both have large share in the export proceeds. The cotton-based textile industry would find it difficult to meet its target while rice export which has gone up to $2bn could show a poor performance. The two crops would certainly add to the trade imbalances and resultantly to the current account deficit.
The poor foreign inflows have created more worries for economy, particularly after delayed IMF tranche and extremely low foreign direct investment.
Trade and industry have asked the government to end the impasse developed after the sit-in in Islamabad. They said that foreign investment would not come if the situation persists.
Except for remittances which increased by 12pc during the first two months, all indicators show that the current account would face more pressure in the coming months.
Experts pointed out that under the declining trend of foreign exchange reserves of the country and mounting pressure on local currency, the expected large size of current account deficit could be a blow to economy.