Because of strong foreign exchange inflows, the widening current account deficit is not a problem since the country's balance of payment has been surplus, he maintained "The government acknowledges that due to domestic demand supporting growth momentum in the neighbourhood of 7 to 7.5%, the current account deficit has widened," he added.
"But as long as this deficit can be financed preferably through non-debt creating inflows such as foreign direct investment (FDI) portfolio investment, GDRs, privatisation proceeds, and grants and assistance, there is nothing to worry about external side of the economy," the advisor emphasised.
He said that large current account deficit could be a problem if it could not be financed through inflows and foreign exchange reserves used to meet the external account gap, resultantly the foreign exchange reserves decline."
"In Pakistan, we are witnessing massive surge in foreign private investment of about $6 billion which is not only financing the deficit but also adding to foreign exchange reserves this year," Dr Ashfaque asserted.
He said that the inflows of the worker's remittances in the first seven months of the current year, amounting to $2.959 billion also remained extremely buoyant showing an increase of 21% comparing with the corresponding period of the last year.
He said that total foreign investment in Pakistan during July-December 2006 amounted to $2.496.7 billion, whereas excluding the privatisation proceeds, it amounted to $2. 363.5 billion. When viewed against last year's figures for the same period the current performance appeared to present a totally different picture as total investment with and without privatisation registered an impressive growth of 68.6% and 92.8% respectively, the advisor said.
He said that portfolio investment on the other hand stood at $627.1 million as against $359.3 million last year - an increase of 74.5%; US has been the largest investor in Pakistan, accounting for 31.9% of the total FDI in the first six months followed by UK (24.7%), UAE (10.8%), Switzerland (3.7%), Kuwait (2.2%), Netherlands (2.0%) and other states.
He said that financial businesses along with communication sector have been the major attractions of foreign investors in Pakistan, accounting for 27.6% and 26.5% respectively, followed by energy sector (oil & gas and power) 21.7% and trade 5%. Three-fourth of the FDI has therefore, come to these sectors.

Copyright Business Recorder, 2007