KARACHI: Despite all efforts to reduce the current account deficit (CAD) by the former Pakistan Muslim League Nawaz (PML-N) led government, CAD has in fact further widened to $18 billion during 2017-18 which is a 43 per cent surge compared to 2016-17. Meanwhile, a weak Pakistani rupee, lack of foreign direct investment (FDI) and ever-increasing imports have added to the government’s troubles.
CAD has jumped by 5.7 per cent of total country’s gross domestic product (GDP) this year, however, the deficit remained at $1.84 billion in June compared to $2 billion in May. During the last fiscal year, the widening deficit has indicated poor financial management of the previous government as it failed to overcome rising imports.
Further, in the most recent round of devaluation, the Pakistani rupee fell by around 5.5 per cent in the interbank market to Rs128.50 this week, making it the fourth devaluation since December 2017. The rupee has fallen by 21 per cent against the dollar so far. The government had devalued the rupee by 5 per cent on December 8, 2017, to Rs110, 4.5 per cent to Rs115 on March 20, 2018, and 5 per cent to Rs121. According to data presented in a report issued by Topline Securities, during the last 10 years, the Pakistani rupee has devalued annually by around 5 per cent.
Experts believe that CAD is widening only on the back of rising import bills and lower inflows of FDI. Moreover, due to the rising CAD, foreign exchange (FX) reserves held by the State Bank of Pakistan (SBP) have remained under pressure and have dropped to $9.063 billion, which covers only 1.5 months of imports bills. Total reserves of the country now stand at $15.682 billion.
According to SBP data released earlier this week, Pakistan’s import bill had touched $55.8 billion during the last fiscal year which is more than double of the total export’s inflows of $24.772 billion. SBP has issued a list of 131 items to impose 100 per cent cash margin on the import of goods to overcome the rising import of luxurious goods. Further, SBP is persistently facing payment pressure of international donor agencies including the International Monetary Fund (IMF).