Current account turns to deficit in December

KARACHI: Pakistan recorded a current account deficit of $662 million in December, after remaining in surplus for the last five months, mostly on the back of higher imports, the central bank data showed on Wednesday.

The country posted a current account surplus of $513 million in November, while it registered a small deficit of $287 million in December 2019.

Cumulatively, during the six months of the current fiscal year, the current account remained in surplus, and stood at $1.131 billion, compared with a deficit of $2.032 billion in the same period of last fiscal year.

“Exports and remittances continued to grow steadily in December 2020 compared to last year. Imports of some essential food items as well as growth-enhancing capital goods, oil and industrial raw materials also rose on the back of the domestic economic recovery,” the State Bank of Pakistan (SBP) said in a tweet. Imports rose 32 percent year-on-year to $5.019 billion in December. Exports, however, increased 6.78 percent to $2.251 billion. The economic activity is gaining momentum, which is evident from the fact that the large-scale manufacturing (LSM) index grew 14.45 percent in November, while cumulatively, the index picked up 7.4 percent year-on-year in the five months of the current fiscal year.

The LSM index is expected to remain upbeat owing to accelerating manufacturing operations, improvement in aggregate demand and new investments.

Recent figures on the Temporary Economic Refinance Facility (TERF) also showed the investment and the economic activities recovered from coronavirus-induced slump.

Analysts said monthly import bill would swell going forward but overall the current account was unlikely to exceed 0.8 percent of GDP this fiscal year.

“Although monthly exports will likely continue their upward march in FY21E, imports are also likely to show increases going forward due to recent increase in international oil prices (Brent crude up by over 100 percent from its April 2020 low to $51/barrel),” said a report issued by BMA capital.

Apart from prices, petroleum import quantities are also recovering to their pre-Covid levels, creating additional burdens on the import bill. Monthly petroleum imports are up by over 40 percent from their April 2020 low and up by 37 percent year-on-year during five months of FY2021, it said.

Moreover, food imports are also likely to remain high in the near-term due to continued import of wheat over the next two months. More importantly, imports of machinery will also pick up pace towards the end of FY2021 as domestic activity improves and businesses import machinery, utilising the concessionary TERF facility given by the SBP, the report said.