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February 20, 2020

C/A gap narrows 72pc in July-Jan on improved trade balance

Business

February 20, 2020

KARACHI: Current account deficit (CAD) narrowed 72 percent to $2.654 billion in the first seven months of the current fiscal year of 2019/20, as the country’s trade deficit contracted and remittances rose, central bank data showed on Wednesday.

The CAD stood at $9.479 billion in the same period of last year. The CAD narrowed to 1.6 percent of percent of gross domestic product (GDP) in July-January period from 5.5 percent a year ago, State Bank of Pakistan data showed.

Analysts said the CAD was likely to continue contracting in the coming months on expectations of further compression in import bill amid sluggish economic activities and decline in crude oil prices. They, however said a declining trend in the current account gap is likely to sustain only if exports managed to post desirable growth.

Saad Hashemy, an executive director at BMA Capital, a brokerage, said Pakistan more likely to keep the CAD below International Monetary Fund (IMF) forecast for the year. “Expect the CAD to be around $5 billion for FY20”.

However, analysts said any downward revision in interest rates was likely to have negative implications for the CAD “as the monetary easing could accelerate domestic demand and pick up imports.

In January, the deficit figured at $555 million, 35.83 percent lower than the corresponding month of FY19 and 77.31 percent higher than the previous month (December 2019).

The trade deficit, a major contributor to the CAD, fell 28 percent to $13.841 billion in July-January FY20.

The bulk of the improvement in the current account stems from falling imports due to significant slowdown in economy that followed the government’s stabilisation measures taken over the past year and a half.

Imports dropped 19.7 percent to $26.086 billion in seven months of this fiscal year, while exports reported a meager growth of 2.2 percent in the period under review. Total goods exports stood at $14.442 billion, compared to $14.136 billion last year. Remittances from overseas Pakistani workers rose 4.13 percent to $13.302 billion in July-January.

The government has taken measures to boost exports by enhancing subsidised credit for exporters and providing regional competitive rates on energy.

Moreover, the SBP has increased maximum limit for setting up long-term export oriented projects to Rs5 billion from Rs2.5 billion under Long Term Financing Facility (LTFF).

The SBP has also provided additional concessional financing of Rs200 billion to banks including Rs100 billion under LTFF and Rs100 billion under Export Refinance Scheme. In addition, the persistent increase in capital account, with continued inflows of foreign portfolio investment and foreign direct investment, also helped improve the current account balance.