ISLAMABAD: The Finance Ministry has attributed the falling foreign exchange reserves to the widening of current account deficit. The current account deficit have widened to $12.4 billion during FY17 as compared to $4.9 billion in FY16. This situation has forced the government to depreciate the local currency against dollar.
The foreign exchange reserves of the country at the end of the previous government were $11.47 billion and at present are $20.70 billion. The country’s total liquid foreign exchange reserves witnessed a reduction of $3.3 billion from the peak level of $24 billion at end October 2016 to $20.7 billion by 8th December, 2017. The State Bank of Pakistan (SBP’s) reserves are currently about $14.7 billion which were sufficient to cover the import bill of about 3 months.
Moreover, the main contributor to the current account deficit is trade deficit which needs to be understood in its true context. It is mainly due to increase in imports of machinery, industrial raw material and petroleum products.
“This sharp increase is due to increased investments under CPEC in energy and infrastructure sectors. These are healthy imports and will enhance production capacity of the country for higher outputs and exports in future,” a source at finance ministry told Customs Today.
The source told that imports increased while exports faced a stagnant trend due to the subdued demand, depressed commodity prices globally coupled with the energy shortages and law & order situation in the country adversely affected the exports. There was also stagnancy in remittances due to tight budgetary conditions in GCC countries as a result of low oil prices, strict regulatory requirements in USA and depreciation of pound sterling against US dollar.
Moreover, the source told that the negative trend in exports bottomed out and exports increased by 11.2% and workers’ remittances by 2.3% during July-October, 2017 as against corresponding period of last year. Similarly, FDI during July-October, 2017-18 stood at $940 million as compared to $538 million in the corresponding period of last year showing an impressive growth of 74%.
These positive trends strengthening, the source said that the current account deficit may substantially improve and the foreign exchange reserves of the country would continue to be at a healthy level in coming months the current fiscal year.