KARACHI, Feb 23: The country’s current account deficit widened further during the first seven months of this fiscal year owing mainly to a 38 per cent increase in the trade deficit in the same period.

The State Bank reported on Thursday that the current account deficit expanded by $2.633 billion in July-January 2011-12 compared to a negligible deficit of $96 million in corresponding period last year.

Economic managers and analysts think the current account deficit could rise further in coming months since surging crude oil prices on fears of short supplies following imposition of sanctions on Iran would further inflate the import bill.

The State Bank said the country’s trade imbalance increased by 38 per cent to $9.057 billion in July-January 2011-12 against $6.531 billion in the same period last year.

Of the total imports of $23.156 billion in the period under review the oil import bill registered an increase of 35 per cent to $8.195 billion.

The high international petroleum price is taking its toll on the economy as on the one hand it demands more dollars and on the other it destabilises the exchange rate.

Separately the State Bank reported further fall in the foreign exchange reserves which dropped to $16.645 billion in the week ending Feb 17, compared with $16.77 billion the previous week.

The reserves had been falling since last July. The re-payments of about $1.2 billion to the IMF would further squeeze the reserves, which are sufficient for 4 to 5 months import.

“Things might improve as we see the ice melting on supply of goods to Nato forces in Afghanistan,” said a senior banker. He said the restoration of supply to Nato would remove restrictions on foreign inflows into the country. Pakistan may get coalition support fund in the wake of restoration of supply.

Analysts show more concerns as they remember the year 2008 when the poor foreign exchange reserves brought the country at the brink of default on external payments forcing it to borrow from IMF.

The poor law and order situation has already discouraged foreign investors resultantly the Foreign Direct Investment (FDI) drastically reduced to a negligible level.

“Pakistan cannot set a target for current account deficit under the global domination of oil producing countries as well as huge consumers of oil like China and India,” said Mohammad Imran, an analyst adding that Pakistan could only receive the
consequences of market volatilities.