Pakistan's current account deficit crosses USD 9 bn mark, analysts warn it may lead to debt trap

Pakistan's current account deficit surpassed USD 9 billion in the first half of the ongoing fiscal year, accounting for 5.7 per cent of the gross domestic product and analysts have expressed concerns over this with some warning that rising current account deficit will lead the country to a debt trap, a media report said citing the data released by the country's central bank.

The State Bank of Pakistan released the data on Saturday and said that the current account deficit of USD 9.09bn was "led by significant terms of trade shock amid ongoing economic recovery", reported Dawn.

The deficit was broadly unchanged at USD 1.93bn in December from USD 1.89bn on November 21. The July-December deficit stands in total contrast to a surplus of USD 1.247bn (0.9pc of GDP) a year ago. However, that six-month surplus also turned to be a deficit of USD 1.916bn, or 0.6pc of GDP, by the end of the 2020-21 fiscal year, said the Pakistani publication.

Pakistan's rising import bill fulled the current account deficit as the bill skyrocketed 53 per cent to USD 41.66bn during the July-December period.

The country's fiscal deficit in the second quarter (October-December) was much higher than the previous quarter, according to the data released by the SBP.

Pakistan's current account deficit amounted to 1.7pc and 0.6pc of GDP during the last two fiscal years (2019-20, 2020-21).

The Imran Khan government links the rising rising import bill to higher machinery imports and term it as a sign of growth in the economy. But experts believe that rising current account deficit can create much bigger problems than the expected economic growth.

As Islamabad bears higher borrowings to meet external obligations, analysts believe that Pakistan seems to head for a debt trap as it has failed to increase exports on a par with surging imports, according to Dawn.