Current account deficit contracts 71pc in July-Feb

KARACHI: Current account deficit sharply narrowed to $2.8 billion in the first eight months of the current fiscal year from $9.8 billion a year ago, bringing its share in GDP down to 1.5 percent from 5 percent as imports and exports gap contracted with improving foreign inflows, the central bank’s data revealed on Wednesday.

The State Bank of Pakistan’s (SBP) data showed that gross domestic product (GDP) amounted to $186 billion in the period under review, compared to $195.5 billion in the corresponding period a year earlier.

In July-February, merchandise exports rose 2.7 percent year-on-year, while imports fell 17.5 percent. The SBP’s data showed that exports of goods were recorded at $16.4 billion, compared to $16 billion. Exports of services amounted to $3.7 billion compared with $3.5 billion.

Merchandise imports fell to $29.6 billion from $35.9 billion. Imports of services declined to $6 billion from $6.1 billion. Remittances grew 5.4 percent to $15.1 billion in the first eight months, compared with $14.3 billion in the corresponding period of the last fiscal year.

The central bank’s foreign exchange reserves improved to $13.2 billion in the period under review, compared to $8.5 billion in the corresponding period a year earlier. In February, current account deficit shrank to $210 million from $338 million in the corresponding month a year earlier and $534 million in January 2020.

Current account deficit narrowed more than 70 percent over a year following the government’s measures to restrict imports and economic adjustments, including rupee devaluation to encourage exports.

Last year, International Monetary Fund (IMF) agreed to lend $6 billion to Pakistan under a three-year extended fund facility program. The agreement also led to unfreezing of policy-based financing from Asian Development Bank and loans from the World Bank.

Current account deficit narrowed 36 percent year-over-year to $12.75 billion in the last fiscal year. The IMF staff team acknowledged the progress made during the last few months in advancing reforms and continuing with “sound economic policies”.

“The macroeconomic outlook remains broadly as expected at the time of the first review,” it said in a statement last month. “Economic activity has stabilised and remains on the path of gradual recovery. The current account deficit has declined, helped by the real exchange rate that is now broadly in line with fundamentals, while international reserves continue to rebuild at a pace considerably faster than anticipated.”

The central bank played safe during its latest monetary policy, slashing interest rate by only 75 basis points to 12.5 percent – the first cut in four years. Growth was projected to decelerate 2 to 3 percent in the current fiscal year from 3.3 percent in the previous fiscal year.