KARACHI, July 5: Pakistan's current account surplus declined to $1.8 billion in eleven months to May 2004 from $3.7 billion in the same period of the last fiscal year. The fall in current account balance would likely have expanded further at the end of the last fiscal year ending in June, figures for which are currently being compiled.

Data released by the State Bank shows that a large trade deficit of $1.122 billion in July-May 2003-04 was the main contributor to a big decline of $1.9 billion or 51 per cent fall in the current account surplus. In the corresponding period of the last fiscal year, the trade deficit stood at $436 million.

The negative trade balance of $1.122 billion in eleven months to May 2004 represents the gap between the FOB or free-on-board value of imports and exports. FOB imports and exports totalled $12.415 billion and $11.293 billion respectively.

Another contributor to the decline in current account balance was the services account deficit that reached $1.082 billion in eleven months to May 2004. In the same period of the last fiscal year, service sector had rather seen a small surplus of $81 million.

Services account turned negative in eleven months to May 2004 on higher shipping bills due to increased external trade and increased transfers abroad by multinationals operating here.

Fortunately, current transfers saw only a marginal fall of $112 million thus containing the decline in the current account balance to some extent. Inward current transfers in July-May 2003-04 declined to $6.018 billion from $6.130 billion in the corresponding period of last fiscal year.

Workers' remittances or money sent back home by overseas Pakistan fell to $3.516 billion from $3.870 billion, showing a decline of $354 million or 9 per cent during this period.

But what largely offset its impact on current transfers was a buildup of $329 million in resident foreign currency accounts. In July-May 2002-03, resident foreign currency accounts had rather seen a decline of $40 million.

But in July-May 2003-04, current transfers in the shape of Saudi Oil Facility went down to $302 million from $610 million a year ago. This facility enables Pakistan to make deferred payments of oil imports from Saudi Arabia.

The fall in the current account balance took its toll on the overall balance of payments that turned negative. In eleven months to May 2004, balance of payments surplus fell to $1.199 billion from $3.943 billion in eleven months to May 2003, showing a decline of $2.744 billion or 70 per cent.

What else squeezed the balance of payments surplus was pre- payment of $1.17 billion expensive Asian Development Bank loans by the government. Besides, in July-May 2003-04 Pakistan did not get the benefit of debt forgiveness. A year earlier, its $1 billion loans had been written off as it had sided with the US- led coalition forces in their "war against terrorism" in Kabul.