CPEC projects: CA deficit increased due to continued implementation

Islamabad – The preliminary projection for the Pakistan's current account deficit in FY2019 is 4.5% of gross domestic product (GDP), with somewhat slower growth but mainly due to continued implementation of China Pakistan Economic Corridor (CPEC) projects.

In its annual report "The Asian Development Outlook 2018", the Asian Development Bank (ADB) said the deficit expanded on larger imports that widened the trade deficit despite a strong revival in exports. Remittances, the traditional off set to the trade deficit, grew by 3.4% in the period, reversing a decline a year earlier, but had only a limited impact on the current account.

Net financial inflows increased by about 14% from the year-earlier period. Filling the financing gap required a drawdown of $3.9 billion in foreign exchange reserves to $12.2 billion. Exports revived to grow by 12.2% in the first eight months of FY2018. Large increases in food exports (mainly sugar and rice), readymade garments and knitwear, leather manufactures, and chemical and pharmaceutical products accounted for the bulk of the rebound.

Despite new regulatory duties, imports grew by 17.3% in the first 8 months of FY2018, slightly faster than in the comparable period of FY2017 to meet sustained domestic demand and the continued large import needs of infrastructure projects reflected in double-digit growth in machinery, metals, and vehicles. Imports of petroleum products were especially large because of higher prices, accounting for a third of the rise in imports.

In the remainder of FY2018, the current account deficit should be reined in by the lagged effects of adjustments to regulatory duties, currency depreciation and credit tightening in January, and the favourable external environment for exports. However, with increased seasonal spending on infrastructure projects, the current account deficit will likely edge up a bit to equal 4.9% of GDP.

"Monitoring Desk"

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