SBP: Reserves slump as deficit hits high

SBP: Reserves slump as deficit hits high

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KARACHI: Current account deficit (CAD) hit $18 billion in FY18, up 42.5% over the previous fiscal year, the State Bank of Pakistan (SBP) reported on Thursday.

Only two years ago, the CAD was at $4.876bn, spiking to $12.621bn the following year, before hitting its record high in 2017-18.
The reserves held by the SBP now stand at $9.063bn while those held by commercial banks are $6.613bn. Total foreign exchange reserves come to $15.682bn

The State Bank data released on Thursday showed aggregate import of goods and services in FY18 reached $66.2bn compared to $58.6bn in the previous fiscal year, an increase of 13%.

On the other hand, exports of goods and services surged to $29.9bn compared to $27.6bn last year, an increase of 8.3%. Exports of goods increased by $2.7bn but the exports of services significantly dropped to $5bn compared to 5.55bn.

At $18bn for the year, the CAD means the economy is burning $1.5bn every month on average.
The government has struggled with this situation since last July when an abrupt devaluation led then finance Minister Ishaq Dar to lose his temper.

However, the biggest step was the decision of depreciation of local currency up to 19% during the fiscal FY18 to make the imports expensive and make the exportable goods cheaper for higher exports.
The result may come in FY19 but the other impacts like rapid increase in main inflation is expected.

The State Bank in its recently announced monetary policy said that to manage expectations of higher inflation, the interest rate was increased by 100bps to 7.5%.

The Central Bank also projected lower than targeted GDP growth of up to 5.5% for FY19 where the government’s target is 6.2%.
Researchers in their report said the GDP could be around 5.1 to 5.2% in FY19.

According to SBP report the trade deficit for FY18 was $36.245bn which was the main reason for $18bn current account deficit.
Analysts claimed that the remittances being sent by the overseas Pakistanis remained intact which helped the country to make payments for its external account.

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