Deteriorating balance of payment situation threatens to economy
March 23, 2012
Pakistan’s balance of payment situation has been deteriorating at an alarming level as widening gap between expenses and earnings has continued to pose a challenge to stabilizing macro-economic indicators in months to come.
The rising imports’ bill coupled with debt service payment continued to dying up the foreign exchange of the country. On the other hand, the earnings through Foreign Direct Investment (FDI) and exports are on the decline.
The situation has been critical for the government at times when it has been left with limited options to improve the track of economy whereas the election is likely to be happened in second half of 2012.
The foreign exchange reserves saw a decline of $1.85 billion since July 2011, reaching 17-month old level, but it will be further drying up to touch $12 billion if the situation of current account persist to remain under pressure.
The current account deficit is expected to cross $3.5 billion or 1.5 of the gross domestic product (GDP) by the end of financial year 2011-2012 mainly on the ballooning trade deficit.
However, if the government repays $1.2 billion tranche to International Monetary Fund (IMF), the level may reach to $5.5 billion or to 2.4 percent of GDP as projected by central bank.
The country’s international trade has posted a new record-high level of $14.59 billion in the first 8MFY12, showing an increase of 41.23 percent if facts were compared with trade deficit of $10.337 billion recorded during the same period of last fiscal year.
Trade deficit is expected to cross well above the projected deficit target of $14.5 billion during the remaining four months of the ongoing fiscal year 2011-12.
The country’s exports stood at $15.189 billion during July-February period of the ongoing fiscal year 2011-12 as against the exports of $15.263 billion in the same period of last fiscal year 2010-11, projecting a decrease of just 0.48 percent.
The prices of finished, semi-prepared and raw products have seen decline in the values particularly textile made-ups and cotton, which caused decline of their exports in the exporting countries. On the other hand, the higher imports of petroleum products and power machineries have increased the import bill of the country significantly.
Imports of the country amounted to $29.788 billion during July to February period of the ongoing fiscal year 2011-12 when compared with imports of $25.600 billion in the same period of last fiscal year 2010-11, indicating an increase of 16.36 percent.
The earning resources were seen limited particularly foreign direct investment (FDI), which dropped significantly by 70 percent to $377.7 million in the period under review.
The remittance opposed slight restriction through inflows of foreign exchange, up 23.4 percent in the eight months to reach $8.592 billion
Analysts said the present situation became tougher for stabilising macro-economic indicators after the rupee continued to lose its value against the dollar, which not only enhanced the burden of debt payment but also swelled the current account deficit.
They said that the widening trade deficit on the stagnant exports of different products coupled with rising import bill led to challenging situation to destabilise the balance of payment further.
The possibility of limiting the deficit to the lower bound of the range is mainly contingent upon the realisation of Coalition Support Fund, $800 million, remaining privatization of $800 million from PTCL and the proceeds from the auction of 3G licences, estimated to be at around $ 1 billion.
But the beleaguered and incapable government failed miserably to generate and recover the earning reserves that will not only stabilize the situation but also help to contain fiscal deficit, which also reached to 3.1 percent GDP in the first half of 2011-12.
The government has postponed the auction of 3G licence from the scheduled March to coming months whereas the recovery of support funds is hanging in balance after change in foreign policy with USA.
Therefore there is slight hope that situation will be settle down on the economy side, which is always overshadowed by political uncertainty and foreign affairs of the country. And the country will likely to suffer a setback as it may go again for IMF for controlling its balance of payment situation if economic managers completely fail to take concrete steps on war footing basis.