Current account deficit exceeded $14bn in ’07-08

[Naveed Yaseen]

KARACHI: The current account deficit of the country increased by $7.138 billion or 103.78 percent to $14.016 billion during 2007-08 from $6.878 billion during 2006-07.

Trade deficit during this period stood at $15.286 billion, higher by 57.40 percent than $9.711 billion last year. Deficit on trade of goods and services combined shot up to $21.588 billion, up by 55.52 percent from $13.881 billion last year.

The deficit on the income side stood at $3.905 billion, up by 9.01 percent from $3.582 billion last year.

Current transfers, which stood at $11.619 billion including workers remittances of $6.451 billion, helped to reduce the current account deficit, which could have been much higher otherwise.

It has been extremely difficult for the new government to curtail this deficit, as the inflow of investment from abroad, which helped the previous government meet country’s foreign exchange demand in the recent years, has declined this year. Besides, exports have failed to keep pace with imports. In fact, the volume of exports was merely half the volume of imports.

The previous government relied on foreign direct investment and investment in stocks from abroad to meet its foreign exchange requirements.

This year both portfolio and foreign direct investment have declined. Net foreign investment dropped by 38.4 percent to $5.193 billion in July-June 2007-08 from $8.428 billion in July-June 2006-07.

Foreign direct investment rose by 0.3 percent to $5.152 billion last year from $5.139 billion last year. Portfolio investment was a mere $40.1 million compared to $3.288 billion last year.

The poor law and order situation and the shortage of energy have hampered flow of investment into the country, particularly in the manufacturing sector.

While the political government, which has recently taken over, is trying to improve the law and order through negotiations, it has admitted it would not be able to overcome the energy crisis for a long time. This inability of the government is likely to act as a barrier for foreign as well as local investment.

http://www.dailytimes.com.pk/default.asp...2008_pg5_1