Balance of Payments

Pakistan’s external account remained under stress through Jul-Nov FY09, as
acceleration in the growth of the current account deficit, and sharply reduced
financial & capital account inflows drew the country’s foreign currency reserves
to perilously low levels. Not surprisingly, the rupee also weakened substantially
in the period, depreciating by as much as 16.3 percent against the US dollar by
end-October 2008, before recovering somewhat after Pakistan gained IMF support
for a macroeconomic stabilization program.
Although there were indications of slowdown in domestic demand, higher import
prices during Jul-Nov FY09 continued to propel import growth. It was only when
the slowdown in the domestic demand was complemented by lower import prices
in November 2008 that the import bill declined 23.9 percent YoY. Lower import
bill combined with the rise in remittances in November narrowed the current
account deficit somewhat for the Jul-Nov 2008 period.
On the financing side, deteriorating macro economic imbalances, sharp
depreciation in Pak rupee against US dollar, and substantial fall in stock market
and consequential increase in the country’s default risk along with downward
revision by the credit rating agencies, deterred foreign exchange inflows during
the period under review. As a result, surplus in financial account recorded
significant 62.0 percent fall during Jul-Nov FY09 in contrast to an increase in the
corresponding periods of last three successive years.