Country posts current account surplus for 5th straight month

KARACHI: Current account surplus increased to $447 million in November 2020 for the fifth month in a row, mainly owing to rising exports and remittances, against a deficit of $326 million in the same month last year, central bank data showed on Tuesday.

The surplus was $415 million in October 2020.

In the five months of the current fiscal year, the surplus reached $1.640 billion, compared with a deficit of $1.745 billion in the corresponding period of the last fiscal year.

The current account surplus was equivalent to 1.4 percent of gross domestic product in July-November FY2021.

“In contrast to the previous 5 years, the current account has been in surplus throughout FY21 due to an improved trade balance and a sustained increase in remittances, “the State Bank of Pakistan said in a tweet.

“In Nov20, both exports and imports picked up, reflecting recovery in external demand and domestic economic activity.”

Samiullah Tariq, a head of research at Pak-Kuwait Investment Company, said, “The current account surplus is

the highest in past five months, the positive factor is that despite a higher

trade deficit (18pc YoY), a current account surplus came due to higher remittances and lower services account deficit”.

Another positive surprise was 51 percent increase in IT exports for November 20, and 38 percent YoY increase in July-November FY2021, he added.

“In my view, another positive aspect of this month’s current account surplus is that it has brought certainty and sustainability to the balance of payments that Pakistan can sustain a higher level of economic activity, meaning higher imports.

The country can sustain a higher level of imports, as strong remittances and a pickup in exports are supporting the economy.”

Larger-than-expected remittances from overseas Pakistani workers

have helped the country maintain the current account surplus, stabilise currency, increase foreign exchange reserves and meet any foreign debt repayments.

Remittance flows to Pakistan jumped 26 percent to $11.77 billion in July-November FY2021.

“This turnaround in the current account, together with improvement in financial inflows, raised SBP’s FX reserves by around $1 billion in Nov20. At $13.1 billion, they are now at their highest level in 3 years,” said the SBP’s tweet.

The current account surplus is likely to be sustainable in the coming months if the exports improve further as a result of recovery in the global economic growth and rebound in the external demand. For this the key factor could be the distribution and the availability of the vaccines in the advanced economies of Europe and the United States, and at a domestic level as well.

However, the world has entered a second wave of the coronavirus pandemic with a rising number of cases seen in Europe and the USA and fresh lockdowns imposed in many countries present downside risks to Pakistan’s exports growth.

Imports also look to remain high, given the anticipated pickup in economic activity following the lifting of lockdowns, and firms’ efforts to replenish inventories.

If the low prices are trending up it won’t help to keep imports in check.

The SBP said the outlook for the external sector has improved further and the current account deficit for FY21 is now projected to be below 2 percent of GDP. ‘Deregulated power sector to pave way for reasonable tariffs’