C/A deficit narrows 29.4pc to $9.5bln in nine months

KARACHI: Pakistan’s current account deficit narrowed 29.4 percent to $9.588 billion in the nine months of the current fiscal year as trade gap contracted and remittances grew strongly during the period, but March number was still higher than the market expectation.

The State Bank of Pakistan’s (SBP) data showed on Thursday that current account deficit amounted to $13.589 billion in the corresponding period last year.

In March, the current account deficit alarmingly widened to $822 million from $278 million in February. Imports in March rose to $4.130 billion from $3.44 billion in the previous month. In January-March, the figure was $1.973 billion versus $3.851 billion in October-December quarter.

The contraction in the current account deficit during the nine months was driven by a slowdown in trade deficit. Trade gap shrank 13.02 percent to $23.672 billion in the July-March amid decrease in imports, while exports remained flat. Exports of goods rose 1.3 percent to $18 billion mainly due to depreciation of exchange rate. Imports declined to $39.314 billion from $41.349 billion a year earlier. Remittances increased 8.74 percent to $16.096 billion in the July-March period of FY2019.

Analysts see the compression in the current account gap as a positive sign. But, they said challenges are still there considering dwindling foreign exchange reserves and foreign debt obligations. Foreign currency reserves held by the SBP fell $1.028 billion to $9.243 billion due to debt repayment of $1 billion against the Eurobond matured this week, according to the central bank’s latest data. In July-March, foreign loans touched $5.6 billion due to $2.6 billion worth of commercial loans from China last month, which brought up foreign currency reserves. Foreign direct investment plunged 51.4 percent to $1.273 billion in the nine months.

The current account deficit necessitates sizable external financing and continuation of stabilisation measures to boost exports and curb imports.

“The share of private financial flows needs to be increased on sustainable basis to achieve medium-to-long term stability in the country’s external accounts,” the SBP said in a monetary policy statement last month. “Similarly, concerted structural reforms are required to reduce the trade deficit by improving productivity and competitiveness of the export-oriented sectors.”

Analysts said the country needs at least $15 billion to meet annual external financing needs. The country is expected to get $6 to 8 billion from the International Monetary Fund (IMF) with which the country is in talks for its 13th loan program since the late 1980s. Sources said Pakistan and the IMF have reached an understanding on the bailout package. The IMF mission will be coming to Pakistan before the end of April to finalise the program’s details.