KARACHI: The current account balance swung into a surplus in February, as as a sharp decline in imports led to a positive figure of $128 million, contrasting with a deficit of $303 million in the previous month, the State Bank of Pakistan (SBP) reported on Tuesday.
The surplus marks a turnaround from the $50 million shortfall reported in February of the previous year. The eight-month period of the fiscal year 2023-24 has seen the current account deficit narrow to $1 billion, down from $3.8 billion in the same period last year, signaling a tightening of the gap that has long pressured the country's external account stability.
Pakistan has achieved a current account surplus exceeding $600 million in the past 12 months (from March 2023 to February 2024),” said Muhammad Sohail, the CEO of Topline Securities. “Measures such as currency devaluation, higher interest rates, and other policy steps have effectively curbed import demand, contributing to this surplus.”
Sohail said looking ahead, it's crucial for the new government to maintain this disciplined approach to ensure much-needed economic stability in the country. "Continued adherence to such measures will be essential for sustaining and further improving Pakistan's economic outlook.”
The SBP data showed that total goods imports reached $4.275 billion in February, down 6 percent from the previous month. Similarly, exports fell by 5 percent to $2.556 billion. Remittances also decreased by 6 percent month-on-month to $2.250 billion.
Services imports fell by 23 percent month-on-month to $785 million. Nonetheless, both exports and remittances performed well when compared from February 2023 to February 2024. There was a year-on-year increase of 13 percent in remittances and a 16 percent increase in exports. Imports, however, rose by 10 percent in February from a year earlier.
“Substantial increase in exports and double-digit growth in remittances are the primary reason behind posting current account surplus despite the increase in imports and higher services deficit,” said Awais Ashraf, director of research at Akseer Research.
“Exports are trending higher because of better rice and cotton production this year, which were affected by floods last year,” Ashraf added. The balance of payments figures were released, following the SBP's decision to maintain the policy rate at 22 percent.
The SBP opted for a cautious approach, maintaining the status quo on interest rates. While expressing optimism about a gradual decline in inflation, the SBP emphasised the need for vigilant monitoring, citing potential impacts from external factors and necessary fiscal adjustments,” said Chase Securities in a note.
“Moreover, ongoing IMF reviews are underway, with the IMF team extending their stay by one day to address pending agenda items, particularly the assessment of circular debt management plans presented by the government,” it added.
The SBP, in its monetary policy statement issued on Monday, said the external current account balance is turning out better than anticipated and has helped maintain foreign exchange buffers despite weak financial inflows. The SBP assessedthat the current account deficit is likely to remain closer to the lower bound of 0.5 to 1.5 percent of GDP forecast range for FY24, which will support the foreign reserves position.
The SBP’s governor Jameel Ahmad said in an analyst briefing that the total amount of external debt that needed to be serviced in FY24 is $24.3 billion, of which $3.9 billion has been set aside for interest payments and the remaining $20.4 billion for principal repayments.
Of this total, $13.5 billion has already been either repaid or rolled over. Consequently, $10.8 billion remains payable within the remaining 3.5 months of the current fiscal year, with $2 billion already in the process of the rollover, possibly in the next few weeks he said.
This leaves $8.5 billion outstanding, comprising $1.3 billion in interest and the rest in principal. Additionally, another $4 billion is set to be rolled over by June, resulting in a total repayment obligation of $3.5 billion by that time, inclusive of a $1 billion Eurobond payment due in April. Looking ahead to FY25, the debt repayment is projected to be similar to that of FY24, with an estimated amount of $12 billion to be rolled over, according to Ahmad.
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