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November 20, 2020

Pakistan posts current account surplus of $382mln in Oct

Business

November 20, 2020

KARACHI: Current account surplus rose further to $382 million in October from $59 million in September on the back of a sustained increase in remittances and smaller trade deficit, the central bank said on Thursday.

“This is the fourth successive monthly account surplus. Since July, the cumulative current account surplus has reached $1.2 billion, reversing the $1.4 billion deficit recorded in the same period last year,” the State Bank of Pakistan (SBP) said in a tweet.

The SBP’s data showed the country posted a current account surplus of $73 million in October last year.

In July-October, current account surplus was equal to 1.3 percent of gross domestic product. There was a deficit of $1.4 billion in the corresponding period of last year.

Foundation Securities said positive support came from improvement in balance of trade and remittances.

Exports rose 1 percent to $1.9 billion in October. Imports fell to $3.5 billion from $3.8 billion in the previous month, according to the SBP. However, exports dropped 10.3 percent to $7.3 billion in the first four months of the current fiscal year. Imports of goods fell 4 percent to $14.1 billion in July-October FY2021. Remittances increased 27 percent to $9.4 billion in July-October FY2021.

Analysts said the consistent increase in the current account surplus is likely to be a problem for the developing economies like Pakistan. Current account surpluses are viewed as slowing economic activity and falling import payments, they said.

“We should not be pretty happy that the current account surplus will continue,” said economist Ashfaque Khan. “There’s no reason to be excited about maintaining the surplus in the country where the economy is expected to grow at 1.5-2.5 percent this fiscal year. We need to concentrate on economic revival, foster economic activity, reduce poverty and create employment opportunities.”

However, a current account surplus could be used to support the foreign exchange reserves and the currency as well.

As on November 13, the foreign exchange reserves held by the central bank amounted to $12.9 billion, up from $12.7 billion as of November 6.

However, the rupee which secured third best performing position in Asia, appreciating 3.1 percent against the dollar since October has started weakening from the beginning of this week. Since Monday, the rupee has lost 1.5 percent versus the dollar.

The SBP forecasts current account deficit to be 1-2 percent of GDP in FY2021, compared with the government target of 1.6 percent. The deficit clocked in at 1.1 percent of GDP in the last fiscal year.