Although Current Account (C/A) deficit of the country has plunged by 73 percent to dollar 550 million in August, 2017 against dollar 2.051 billion a month earlier, the overall position during the first two months of the current fiscal year was highly disturbing. According to the latest data released by the State Bank, C/A deficit during July-August, 2017 was about 102 percent higher than the same period of FY17. Cumulatively, the deficit swelled by dollar 1.314 billion to reach dollar 2.601 billion compared to dollar 1.287 billion in the corresponding period of last year. The detailed analysis showed that combined deficit of goods, services and income rose by 27 percent to surge to dollar 6.723 billion as against dollar 4.903 billion registered in the same period of last year, showing an increase of dollar 1.820 billion. With dollar 8.982 billion of imports and dollar 3.932 billion of exports, the country's merchandise deficit soared to dollar 5.050 billion during July-August, 2017 compared to dollar 3.685 billion in the same period of last year. Services' deficit stood at dollar 983 million as exports were valued at dollar 983 million as against the imports of dollar 1.799 billion. Similarly, with dollar 792 million of payments and dollar 102 million of receipts, primary income deficit surged to dollar 690 million during the first two months of FY18.

A sharp deterioration in the current account balance is very depressing as it could have severe implications for the level of foreign exchange reserves of the country, value of the rupee, investor confidence, inflation, etc. This is particularly so when the foreign sector of the country is already under a great deal of pressure. The current account deficit of the country in the last fiscal year was over dollar 11 billion and could be well over than the projected level of dollar 10.4 billion for the current year. The fact that exchange rate of the rupee is still stable and the inflation rate has not gone up sharply is due to the insistence of the government to maintain the value of the rupee at the present rate, notwithstanding the injection of foreign exchange resources into the market. Obviously, such a situation is not sustainable as external indebtedness of the country is already on a higher side, receipts from Sukuk and Euro bonds in future could be limited and at a higher cost. Foreign grants and sale of family silver could support the balance of payments temporarily but are no substitute to addressing the structural problems in the external structure.

It is disappointing to note, however, that relevant authorities of the country, particularly the Finance Minister, do not seem to be worried about the widening of C/A deficit and attendant vulnerabilities of the economy. Instead, they seem to have found an easy way to fill the gap in the external sector by resorting to floating of bonds or borrowings from foreign banks on a short-term basis. They will also be happy about the data for August, 2017, which shows a reduced C/A deficit of dollar 550 million, supported by higher home remittances, lower trade deficit and improvement in FDI, without realizing that this could only be a one-off development and even this level of deficit is also not sustainable in the long run. Keeping all these factors in view, we will urge upon the authorities not to be lulled into complacency but to work on a number of fronts to reverse the deteriorating trend in external account and try to post a surplus, if possible, to reduce the stock of external debt over time.

Copyright Business Recorder, 2017