Declining process of privatization, increasing imports and slow growth in exports is putting negative impact on the country's balance of payments.
The Balance of Payments (BOP) is a statistical statement for a given period showing transactions of residents of the reporting economy with the non-residents. The yearly booklet for 2005-06 provides estimates of Pakistan's Balance of Payments for the financial year July 2005- June 2006 developed in lines with the methodology detailed in the 5th edition of Balance of Payments Manual of IMF (BPM5).
The main categories of BoP are (a) Current Account Balance (CAB) (b) Capital and Financial Account, (c) Errors and Omissions and (d) Exceptional Financing. The CAB comprises of balance of trade in goods and services, income account, and current transfers. Capital account relates to acquisition & disposal of non-produced non-financial assets and capital transfers. Financial account is classified into Direct Investment, Portfolio Investment, Other Investments, Financial Derivatives and Reserves. Other Investment comprises of trade credits, loans, currency and deposits and other assets /liabilities. Changes in the economy's monetary gold, special drawing rights (SDR) and foreign exchange are the part of reserves.
Economists are also seriously concerned about the rising current account deficit and believe that during the current fiscal year 2008 country have to face record current account deficit.
State Bank of Pakistan has recently issued statistics of current account deficit, which shows that during the first seven months of the current fiscal year country's current account deficit has breached all previous record reaching new peak level of 7.51 billion dollars due to huge imports on account of goods and services.
The central bank has revealed that the current account deficit has registered a growth of 47 per cent during the period July-January of the fiscal year 2008.
For the first time in the history of Pakistan current account deficit has crossed seven billion-dollar mark, which is also near about some 4.2 per cent of the GDP as against the target of 5 per cent for the current fiscal year.
Statistics depict that higher imports from goods and services sector have badly hit the balance of payment and pushed the current account deficit to an unprecedented peak level in the history of Pakistan, which is another challenge for the new political government.
The previous year's deficit reveal that during the fiscal year 2007 current account deficit has up by 1.888 billion-dollar or 24 per cent and the country has faced an overall 6.878 billion-dollar current account deficit, which was the highest deficit ever in the history of the country.
However, during the period July-January fiscal year 2008 current account deficit has breached previous fiscal year ever-highest record and touched historical level of over 7 billion dollar in January 2008.
Current account deficit has gone up by 2.404 billion dollar or 47 per cent during the first seven months and after this up surge current account deficit has touched peak level of 7.51 billion dollar during the period July-January of current fiscal year as compared to 5.106 billion dollar during the corresponding period of fiscal year 2007.
Increase in current account deficit has been contributed by trade, services and income deficit, besides huge payments of interest and dividends during the fiscal year 2008, which have gone up by some 3 billion-dollar to 13.96 billion dollar in the first seven months of the current fiscal, previously stood at 10.90 billion dollar during the same period of last fiscal year 2007.
“Although the remittances are gradually increasing, however the rising import bill followed by the high is a chief reason behind the current account deficit,” economists said.
They said that the government failed to promote exports as per target, while the imports of goods and services are also uncontrolled, which is pushing the current account deficit upward.
Slow process of privatization is another chief reason behind this raise, as during the current fiscal year no privatization transaction has been made the government, they added.
Statistics indicate that remittances have gone up by 22 per cent to 3.6 billion dollars during the period January-July, however principal factors responsible for the widening of current account deficit include a widening trade deficit of 7.8 billion dollar, services deficit of 3.98 billion-dollar and income deficit of 2.173 billion dollar during the period July-January 2008.
Country's altogether income from abroad stood at 1.031 billion dollar as compared to 3.2 billion dollar payments of income to overseas. Services sector imports reached 5.49 billion against exports of 1.62 billion dollar.
While, goods' exports during the first seven months stood at 10.977 billion dollar as compared to imports of 18.78 billion dollar.
Due to the widened current account deficit, the government is compelled to use their reserves and some 2.14 billion-dollar have been paid from the SBP reserves for the current account payments. Therefore the overall reserves have declined to 12.917 billion dollar from 15 billion dollar in July 2007.
The statistics of current account deficit depict that during the current fiscal year overall deficit would be near 10 billion dollar, which will further hit the country's liquid foreign reserves.