Current account deficit narrows 74pc in July-May

KARACHI: Pakistan’s current account deficit sharply narrowed around 74 percent to $3.3 billion during the first 11 months of the current fiscal year as the government kept import-related outflows in check through regulatory and administrative measures, the central bank’s data showed on Wednesday.

The State Bank of Pakistan’s (SBP) data showed that current account deficit stood at $12.5 billion in the corresponding period a year earlier.

The significant reduction in the current account deficit was mainly due to reduction in trade deficit, driven by falling imports that fell 19 percent year-over-year in the July-May period.

In May, current account recorded a surplus of $13 million, as opposed to a deficit of $530 million in April and $1 billion in May 2019. This was the second time during the current fiscal year that the current account witnessed surplus. The current account balance turned to surplus of $90 million in October 2019 for the first time in four years, but reversed course as exports continued to fall.

The improvement in the May current account is largely driven by a year-on-year decline in imports that fell 36 percent to $2.8 billion in May due to lockdown related to coronavirus pandemic. Exports also declined 45 percent to $1.2 billion in May from $2.323 billion in the corresponding month of last fiscal year.

Pakistan's economic survey said the COVID-19 outbreak has generated both demand and supply shocks across the global economy. It has posed significant challenges for exports to increase further in the coming months.

“However, the latest data indicates that the external sector continues to improve substantially on account of modest growth in both exports and workers’ remittances and a significant reduction in imports,” it said.

“The overall external account liquidity has improved due to the pandemic. Pakistan, as a net oil importer, would benefit from the decline in global oil prices on account of the slowdown in global economy. Apart from deceleration in inflation, this will further reduce the import bill and the current account deficit.”

The current account deficit would continue to decline in June and full-year position would be satisfactory for the economy that was facing balance of payment crisis prior to the International Monetary Fund’s loan program. The last year’s IMF loan reforms opened up doors to other financial institutions.

The IMF program stalled in March, stopping release of third tranche under the $6 billion extended fund facility. Foreign loan and grant commitments need to be materialised to support the country’s balance of payments as oil price recovery could renew payment pressure.