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Current account deficit balloons 37% MoM to $1.7 billion in December

During the first half (July-December) of the current financial year 2018-19, the current account deficit declined by 4% year-on-year (YoY) to $8 billion compared to corresponding period of FY17-18 when it was recorded at $8.4 billion

By
Mohammad Farooq
-
January 17, 2019
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    LAHORE: Contrary to expectations, the current account deficit soared by 37% month-on-month (MoM) in December 2018 to $1.7 billion as compared to $1.2 billion in November 2018, according to data released by State Bank of Pakistan on Thursday.

    However, during the first half (July-December) of the current financial year 2018-19, the current account deficit declined by 4% year-on-year (YoY) to $8 billion compared to corresponding period of FY17-18 when it was recorded at $8.4 billion.

    According to Topline Securities CEO Muhammad Sohail, “The current account deficit was much higher than our expectations of $1 billion.”

    In brief comments, he added, “Further tightening in near-term through interest rate hike and rupee devaluation cannot be ruled out.

    The government should also implement significant additional taxation measures in next weeks mini-budget to curtail both demand and the burgeoning fiscal deficit.”

    The major rise in CAD has been fueled by a 12% ($574 million) MoM rise in total imports to $5.5 billion compared with $4.9 billion in the previous month.

    Correspondingly, total exports also grew by 8% MoM ($188 million). The increase in current account deficit ($451 million) MoM is fueled by an increase in the overall trade deficit ($386 million).

    Also, remittances increased by 5% or $81 million in December last year. During the first half of current FY18-19, 16% YoY decline in services imports helped curtail the overall trade deficit to $17.5 billion and current account deficit clocked in at $8.0 billion.

    And the foreign direct investment (FDI) during the first half of current FY18-19 plunged 77.2% to $899.5 million compared to $3.950 billion in the corresponding period of 2017.

    On a year-to-year basis, the FDI also plunged to $230 million in December 2018, against FDI of $2,740 million in the same month of the preceding year.

    According to details, the net FDI from the United States fell from $407.5 million in July-December 2017-18 to negative $196.2 million in the same period of the current financial year.

    Similarly, the net FDI from China also fell from $1,107.4 million in the corresponding period of 2017-18 to $754.2 million in the same period of the current FY18-19.

    The net FDI from the Netherlands increased from $46.9 million to $53.5 million whereas, from the United Arab Emirates, it increased to $45.7 million from $5.8 million.

    Likewise, the investment from Turkey also rose to $33.1 million in July-December 2018-19 from $8.8 million in the same period of the previous year.

    To rein in demand, the central bank has allowed the rupee to depreciate by approximately 22% to Rs138.84 since December 2017 and made borrowing expensive by hiking the key interest rate by 425 basis points to 10% at end of November last year.

    Pakistan’s current account deficit had swelled to a record high of $18 billion in FY17-18 mainly due to a surge in imports and less-than-forecast inflows.

     

    • TAGS
    • BALANCE OF PAYMENTS
    • Current Account Deficit (CAD)
    • exports
    • Financial year 2018-19
    • imports
    • Remittances
    • State Bank of Pakistan (SBP)
    • Trade deficit
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      Mohammad Farooq
      The author is an Assistant News Editor at Profit by Pakistan Today. His works have been published in Dawn, Express Tribune, LiveMint India, Huffingtonpost India and The News on Sunday. He tweets @MohammadFarooq_

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