Pakistan’s fight against current account deficit

Pakistan is currently fighting to contain the current account deficit, with plans underway to raise $750 million through Eurobonds.

And all eyes are set on the release of the $500 million plus second tranche of a $6.7 billion IMF loan.
Officials of the ministry of finance say they have approached Citibank, HSBC and China International Banking Corporation to advise them on the bond issue to shore up the dwindling foreign exchange reserves.

Overall liquid forex reserves have fallen below $10 billion primarily because of heavy external debt payments. Most recently, Pakistan repaid about $251 million of a previous IMF loan in two installments; one on September 27 and the other on October 1.

Besides, foreign companies repatriated $202 million in profits and dividends abroad between July and September, up 54 per cent compared to what they had sent in the year-ago period. The rupee is understandably under pressure and has lost about 7.3 per cent value against the dollar in four months to October.

Export earnings grew more than 19 per cent year-on-year in September, backed by 12 and 15 per cent rises in food and textile exports respectively. A huge $347 million inflow through exports of petroleum, naphtha and coal also contributed to such a big rise in exports. In September last year, the country had earned almost nothing through exports of these items.

Remittances from overseas Pakistanis posted a phenomenal 27 per cent increase in September, as the State Bank of Pakistan tightened the monitoring of remittance flow through banks and foreign exchange companies, and a small dent was made in capital flight. The overall growth in remittances in the first quarter also stood above nine per cent.
The UK is currently the fastest growing remittance market (with a 35 per cent increase in inflows from there in the first quarter), and Saudi Arabia is the biggest source of remittances. In Q1FY14, remittances from there exceeded 28 per cent of the total.Foreign direct investment also grew 85 per cent in Q1FY14 from Q1FY14 on the back of strong inflows (in descending order) from the US, Switzerland, Oman, Hong Kong, UK, Italy and Austria.

During the first two months of FY14, large-scale manufacturing (LSM) grew by 6.5 per cent

According to the Pakistan Bureau of Statistics, output of key industries like fertilizer, electronics, food, beverages and tobacco, paper and board, coke and petroleum products, and leather goods saw double-digit increases in July-August of this fiscal year. Iron and steel products, textiles, pharmaceuticals and chemical industries also recorded marginal increases in production.

In agriculture, the cotton output up to October 1 has shown about seven per cent year-on-year growth. But according to latest Suparco estimates, the overall output is expected to reach 13.155 million bales, lower than this year’s original target of 14.1 million bales.

Rice and sugarcane production estimates of seven million tonnes and 69 million tonnes respectively are, however, above their targeted levels of 6.2 million tonnes and 65 million tonnes.