Economic mangers were able to reduce the dollar-hungry country’s current account deficit by $2.35 billion (or 51 percent) to $2.299 billion between July 2012 and June 2013.
Pakistan’s current account balance in fiscal year 2012 (FY 12) witnessed a huge deficit of $4.658 billion. It shrank to 0.9 percent of the country’s Gross Domestic Product (GDP) against two percent registered the previous year.
A quarterly account of the official data showed that the start of FY13 was extremely favorable for the country’s external account as during the first quarter, July-September, the current account registered a surplus of $362m.
This trend however, could not be continued and the remaining three quarters namely Oct-Dec, Jan-March and April-June registered deficits of $128m, $1.385b and $1.148b, respectively.
On the whole, FY13 appeared not to add much to the balance of payment woes of the cash-strapped government of Pakistan which has now resorted to an official-level approval from the International Monetary Fund (IMF) for a $5.3 billion extended fund facility. The Pakistan Muslim League-Nawaz (PML-N) government reportedly requested the IMF to increase the volume of the loan to $7.5 billion.
Easing on the current account front also came as breather for Pakistan’s economic mangers.
The major attributable factor a declining current account deficit appeared to be a manageable trade deficit marked by subdued imports and improved inflows via worker remittances.
The country’s ever-growing trade gap remained in check during the recently concluded FY at $15.056 billion compared to $15.765 billion the previous year. This was mainly due to subdued imports which stood at $39.801 billion compared to FY12’s $40.461 billion. Also, the country’s exports showed improvement and increased from $24.696 billion to $24.745 billion during the same period.
Worker remittances happened to be another positive on the balance of payments list. Pakistanis working abroad sent back a record $13.920 billion during FY13 in contrast to $13.186 billion the previous year.
International lenders and donors sent $295 million in short-term loans from the Islamic Development Bank. In FY12 the country’s foreign disbursements via short-term loans were zero.
The positive attitude of the IMF lenders indicated that the fresh bailout package of $5.3 billion would be accompanied by the long-awaited Letter of Comfort for Islamabad. The World Bank, the Asian Development Bank and multilateral and bilateral lenders had tied their dealings with crisis-hit Pakistan to an IMF backed Letter of Comfort.
Overall disbursements in FY13 stood at $2.131b with $1.836b under the head of long term loans of which $1.699b came via project loans and $137m via program loans.
The country’s foreign exchange reserves contracted up to $10.5b in July 12, of which the SBP held $5.5b while $4.98b were with commercial banks.
Despite these meager reserves economic observers predicted an uptick in the flow of foreign investment, especially the FDI, owing to political certainty and the government’s apparently serious intentions to bring the ailing economy back on track.
According to central bank, during FY13 foreigners invested more than $1.44b up by 76 percent (or $627m) from FY12’s $820.6m.