Owing to higher than expected trade deficit, the Finance Ministry after revising the current account deficit target set it at $5.137 billion (4.2 percent of the GDP) against budgeted target of $2.7 billion (2.19 percent of the GDP) for the current year. Notable point is that some two months ago the Finance Ministry revised the target at $5.137 billion. And now after a short span of time, the ministry on Wednesday at the Public Accounts Committee (PAC) meeting openly admitted that the deficit by the end of June would go beyond $7 billion mark, which indicates that the external pressure on the economy is mounting to an alarming level.
Economic managers on the other hand were not much perturbed, saying that Pakistan has sufficient resources in terms of foreign direct investment (FDI) inflow, privatisation proceeds, foreign donors aid and other heads to finance the soaring current account deficit. Provisional data released by the SBP showed that the trade deficit (in goods) jumped to $6.232 billion during July-March 2006 from just $3.326 billion during the same period of the last fiscal year. The trade deficit figures have been determined by using free-on-board value of imports and exports.
During the first nine months of FY 2006, goods imports stood at $18.24 billion, whereas exports amounted to $12.01 billion, thus, leaving a trade imbalance of $6.232 billion. During the same period of the last fiscal year, imports had valued $14.023 billion and exports stood at $10.697 billion, depicting a trade deficit of $3.326 billion.
The import bill during the period under review shot up not only because of higher prices of petroleum products, but also because of high import of food items, machinery and automobiles.
The services account also witnessed a large imbalance of $3.374 billion as inflows under this account stood at $2.71 billion, whereas outflows amounted to $6.084 billion.
Imbalance in services account was also witnessed at $2.417 billion during the period under review as compared to the same period of the last fiscal year, as inflows under this account stood at $2.465 billion and outflows at $4.88 billion.
The factors responsible for this huge deficit included higher outflows on account of transportation, travel, insurance, construction services, royalties and licence fees.
The combine imbalances in the trade and services were so large ($9.606 billion) in July-March 2006 that the current account turned negative despite a strong build-up in the current transfers.
Net current transfers during the period rose to $7.187 billion, from $6.362 billion in the corresponding period of the last fiscal year.
The data also revealed that the current transfers during the third quarter of this fiscal went up as Pakistan received $3.228 billion in workers' remittances during the period July-March 2006, up from $3.05 billion in the same period a year ago.
A big increase in foreign currency deposits held by the resident deposit holders also boosted current transfers. However, it declined to $198 million during the period under review as compared to $426 million in the corresponding period of the last fiscal year primarily because of stable rupee.
The rupee kept its value stable against the US dollar during the period providing less incentive to those willing to maintain foreign currency deposits.