KARACHI - The extraordinary growth in the imports in the month of July 2008 may drain out the national foreign exchange reserves further due to deteriorating balance of payment scenario in the upcoming months of current fiscal. Contrary to the government estimate, the imports growth has increased by 38 percent during July, the first month of FY09, accelerating the overall trade deficit by 49.19 percent, to 1.644 billion dollars from 1.102 billion dollars in the corresponding month FY08. While the growth in export business increased by 29.48 percent rose to 1.905 billion dollars during the period under review. Official sources told The Nation that the federal government had projected 6 percent decline in imports in FY09 in the Trade Policy 2008 with a view to curtail import growth and to strengthen the weakening foreign exchange reserves. They said the stunning growth of 38 per cent in imports in the first month of this fiscal was shocking for the policy-makers, who would have to take extraordinary steps to reduce the non-essential imports in FY09. According to the break-up of the foreign reserves position, by August 2, 2008, the total liquid foreign reserves held by the country stood at $10.159 billion US dollars and if the current trend of growth in imports continued unabated, the country's foreign exchange reserves would wipe out in few months, said sources. Economic experts are of the opinion that containing import growth and raising the exports further is critical for narrowing the external current account deficit, which is key to the macroeconomic sustainability. "Additional efforts to mobilize financing to meet the external current account deficit are equally critical as the assumptions underlying balance of payment projections have changed with the rise in international oil prices. At the same time financing mobilization will need to be calibrated to recover foreign exchange reserves to a more comfortable level" said expert. SBP reserves have depleted further by US$ 1.6 billion during May 23 to July 25, 2008. Also, import growth is alarmingly high rising by 50.1 percent during H2-FY08 compared to 2.5 percent in the corresponding period of the last year. After experiencing a high degree of exchange rate stability for almost five years, with the growing pressure on foreign exchange reserves, Rupee Dollar parity depreciated cumulatively in FY08 by 11.5 percent in nominal terms. However, depreciation in the Real Effective Exchange Rate was only 2.4 percent due to high domestic inflation relative to inflation in the trading partner countries. Managing exchange rate has been a challenge during the year as the investor sentiments and speculative tendencies introduced spikes in exchange rate, which dipped to lows of Rs69.73 per US$ (on May 21, 2008) compared to an average of Rs62.63 per US$ during FY08. To curb the pressures and calm the sentiments in the domestic foreign exchange market, SBP introduced two rounds of administrative and regulatory measures that helped to restore a degree of foreign exchange rate stability. Government's heavy reliance on SBP borrowings continued unabated with additional borrowing of Rs149.8 billion during May 25 to June 30, 2008. Budget for fiscal year FY09 estimates put the fiscal deficit at 7 percent of GDP, while financing data available to SBP for the full FY08 shows that this could be as high as 8.3 percent of GDP.1 Within two months (May and June 2008), trade and external current account deficits as percent of GDP widened further by 1.5 percentage points each and exchange rate remained under pressure. In the same period, CPI inflation (YoY), on the back of high International commodity prices and high inflationary borrowing, increased by 4.3 percentage points.