LAHORE - Around 23 per cent monthly higher export receipts at $2.3 billion and 20 per cent higher remittances at $1.6 billion led to improvement in current account, which posted a surplus of $76 million in last month (December) of the first half of 2014-15 against deficit of $568 million in corresponding period of 2014.

According to financial experts, soft imports numbers over the past couple of months also contributed towards turning C/A positive. Overall, 1HFY15 C/A deficit stood at $2.36b against 1HFY14 deficit of $2b, where higher imbalance is owing to 13% YoY higher trade deficit.

Expected improvement in external accounts is starting to materialize which is expected to keep Pak Rupee (PKR) stable at least in the medium term. Moreover, government expects around $700m from the US under the Coalition Support Fund (CSF) by Mar 2015 (potentially additional $250m promised by the US Secretary of State), which should further shore up the foreign exchange reserves.

Meanwhile, balance of payment also posted a surplus of $1.4 billion versus Nov 2014 deficit of $258m, led by $1.0b investments in debt securities. It is to be noted that Pakistan successfully completed $1.0b Sukuk transaction last month. As a result, 1HFY15 balance of payment account posted a surplus of $485m compared to 1HFY14 deficit of $1.9b.

State Bank of Pakistan (SBP) statistics showed that the country’s overall C/A deficit posted an increase of 18.0%YoY or $361m to $2.4b (1.6% of GDP) during 1HFY15 as against $2.0b (1.6% of GDP) registered 1HFY14. The massive uptick in C/A deficit can be attributed to: 4%YoY increase in overall import bill to $21.9b and 2%YoY decline in export receipts to $12.2b. On the flip side, balance of payment position got strengthened by $ 1.0bn on account of global Sukuk auction along with improvement in capital account to the tune of $252m (up 55%YoY). On a quarterly basis, C/A deficit significantly improved to $715m (down by $932m or 56.6%) during 2QFY15 as against a deficit of $1.6b registered in 1QFY15. The improvement in quarterly deficit can be attributed to 38%QoQ decline in trade deficit to $3.8b on account of 16% decline in imports (oil imports down 30%) along with 5% increase in exports. Experts expect external account position to further strengthen in later half of FY15 in the wake of i) bearish outlook of global crude oil prices on account of rising crude oil supplies thus they foresee a potential reduction of $1.5b-$2.0b in oil import bill during 2HFY15, ii) GoP initiatives to reduce energy deficit which may potentially spur exports, and iii) expected increase in FDI on account effective execution on reform agenda.

According to State Bank of Pakistan (SBP) statistics, import bill was seen quite controlled subsequently the global oil prices impacted positively, showing a mere growth of 4 percent year-on-year in the first half of 2014-15 reaching $21.99 billion.

The exports of goods showed negative growth of 1.9 percent touching $12.22 billion in the said period. Overall, the trade deficit that impacted on balance of trade heavily widened to 9.77 billion with 13 percent growth from previous financial year.

Moreover, the trade deficit of the service sector was showed a marked improvement declining by 20.7 percent to $1.19 billion in the first half.

In contrast, the remittances continued to grow with 15 percent increasing on year-year basis. It reached $8.98 billion in five months of FY15 compared with $7.79 billion in the corresponding period of last financial year.

Some experts are of the view that the country may face some pressure on external account as major debt payments of Paris Club and IMF are scheduled in FY17 and FY18, which will consume a healthy amount from forex reserves.