July-Feb services deficit reaches nearly $2 billion
Source: Brecorder.com Date: (2012-03-28)Category:
KARACHI: The country’s services trade deficit continued to widen. It reached nearly $ 2 billion, registering a notable increase of 149 percent, during the first eight months of FY12 primarily driven by high payments of transportation, travel and absence of CSF inflows.
Economists said non-payment of Coalition Support Fund (CSF) and rising payment of transportation and travel are chief reasons for high services trade deficit during the period under review. Services sector trade statistics are gradually deteriorating and deficit of services trade that posted some decline during last fiscal year, is again on surge, they added.
“This increase in the deficit was owing to the absence of foreign inflows under the CSF and secondly the rise in outflows viz travel services,” they said and added that increase in the services account deficit also contributed to the widening of deficit in the current account during the current fiscal year. Pakistan had received $743 million on account of CSF during the first half of FY11, while this year so far the country has not received any inflow under the CSF, resulting in high services deficit.
According to the State Bank of Pakistan’s latest statistics, services deficit registered an increase of 149 percent during July-Feb of current fiscal year. With current surge, deficit mounted to $1.92 billion during first eight months of fiscal year 2012 compared to $771.874 million in the corresponding period of last fiscal year, depicting an increase of $1.148 billion.
The detailed analysis revealed that both components of services sector including exports and imports of services are not performing well as the exports are on decline and imports are increasing gradually.
During the period under review, exports of services sector posted a decline of 20 percent or $792 million. With this decline, the services sector exports declined to $3.252 billion in July-Feb of current fiscal year compared to $4.04 billion in the same period of last fiscal year.
However, services sector imports have registered a growth of 7 percent during the period under review. Overall services sector imports reached $5.172 billion during July-Feb of FY12 against imports of $4.815 billion in the corresponding period of FY11, depicting an increase of $357 million.
Economists said that the imbalance in services deficit also resulted in deterioration in current and financial accounts bringing pressures on the SBP reserves and exchange rate.
During H1FY12, Pakistan’s liquid foreign exchange reserves declined by $1.4 billion, while the exchange rate depreciated by 4.4 percent, they said and added that the pressure on the country’s reserves and exchange rate could increase in the remaining months with a further widening of the trade deficit and external debt servicing.
In this scenario, it is important for the government to have a clear and credible strategy for shoring up the external position to avoid undue speculative pressures, they added.
Similarly, the country has earned $1.01 billion on account of transportation services against payments of $2.41 billion, depicting a deficit of $1.3 billion.
Inflows on account of travel stood at $239 million, 136 million on account of communication, $16.6 million from construction services, $164 million from Information Technology, $37 million financial services and $1.18 billion earned on account of government services during July-Feb of FY12.
On the other hand, travel payments stood at $823 million, communication $101 million, construction $52 million, insurance $167 million, financial sector $89 million and IT payments at $106 million during the period under review. In addition, some $87 million was paid on account of royalties and $523 million for government services.
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