The Current Account Deficit (CAD) has swelled and crossed the mark of $9 billion in merely seven months of the financial year. This is due to the ballooning trade deficit caused by a continuous increase in imports of commodities with limited earnings of exports and remittances.
According to the State Bank of Pakistan (SBP), CAD increased to $9.15 billion during the period of July to January 2018 as compared to $6.18 billion recorded in the similar period of last financial year, showing a difference of $2.97 billion or 48%.
The current account showed a deficit of $1.61 billion in the month of January 2018 which was higher than in December when it stood at $1.25 billion.
The current account deficit is one of the major macroeconomic indicators. The rising deficit presents a worry for the economy, along with the depletion of foreign exchange reserves, increasing debts and depreciation of Rupee against the Dollar.
These indicators are connected to each other and are having a negative impact on the economy.
The imbalance of payment between exports and imports stood at $17.1 billion in July to January. The imbalance of service trade stood at $2.95 billion in the same period.
The deficit of goods and services showed a year-on-year increase of 21%.
Remittances also registered an increase, standing at $13.59 billion in the period of July-January of FY18, up from $12.92 billion registered in the same period last year with slight year- on- year growth of 5%.
Earnings from exports of goods stood at $13.9 billion in addition to exports receipts earned through services recorded at $2.99 billion during the period.
According to analysts, the current account deficit is staggeringly high, posing a challenge to economic managers.
They need to keep an eye on macroeconomic indicators that could negatively impact various factors of the economy.
The deficit is also due to the continuation of machinery imports, both for CPEC and non-CPEC, energy and infrastructure projects, whereas, imports for plant up-gradation under the ongoing export package for the textiles sector also added to the pressures.
According to predictions by SBP, the current and external accounts may remain under pressure, and are expected to emanate from the elevated demand of imports.
During the past seven months, CAD gradually decreased from 102% in November to 90% in October on year-on-year basis. Finally, it reached down to 57 percent higher than previous year in the first half of 2017-18 and now stands at 48 percent year-on-year high.
Given the capital spending requirement of the government for completing various projects under CPEC and the likely increase in provincial spending during the election year, achieving the growth target of 4 to 5% in FY18 could be challenging.