KARACHI: Pakistan’s current account deficit dropped by 79 percent year-on-year to $160 million in August mainly due to a fall in imports, the central bank said on Thursday, while foreign direct investment (FDI) rose 16 percent in the first two months of the fiscal year.
The current account deficit, which measures the flow of goods, services and investments into and out of the country, also saw a 79 percent decrease on a month-on-month basis in August. The country ran a deficit of $775 million in July.
The current account deficit narrowed by 54 percent to $935 million in the first two months of the current fiscal year that began in July. The deficit stood at $2.035 billion in the same period of the last fiscal year.
Total imports decreased 28 percent year-on-year to $4.290 billion in August. However, exports also declined by 11 percent to $2.422 billion in August. Remittances from overseas Pakistanis fell by 24 percent to $2.093 billion in August.
The State Bank of Pakistan (SBP) maintained the target for the current account deficit for the fiscal year 2023/24 at 0.5 percent to 1.5 percent of gross domestic product (GDP), according to its post-monetary-policy analysts briefing.
The country started seeing current account deficits after the withdrawal of import prioritisation guidelines and the resultant pickup in import volumes.
“Nonetheless, the MPC (Monetary Policy Committee) views that overall imports are expected to remain in check, supported by the favourable trend in non-oil commodity prices, moderate domestic demand and improved cotton production.” The SBP said in a monetary policy document released on Thursday.
“Favourable rice prices and available surplus bode well for the export outlook. Moreover, the recent structural reforms related to exchange companies will strengthen their governance structure and improve market functioning. On balance, the Committee expects the current account deficit to remain in the earlier projected range for FY24.”
FDI rises
FDI inflows increased 16.1 percent to $234 million in the first two months of the current fiscal year, the central bank data showed. The country had received $201 million in direct investment in the same period of the last fiscal year.
In August, the net FDI stood at $146 million, up 15 percent from a year earlier. The SBP data showed investment inflows from China, which has the highest share of 22 percent in Pakistan’s total FDI, increased 34 percent to $50 million in July-August FY24 from $38 million in the same period last year, while investments by the Netherlands rose 204 percent to $43 million from $14 million. The companies of Switzerland invested $36 million in Pakistan, which was 10 percent higher when compared with $33 million the year before.
During July-August FY24, the FDI investments in the power sector rose 24 percent to $98 million. The investment in the oil and gas exploration sector rose 96 percent to $29 million in the first two months of this fiscal year.