Current account deficit shrinks to $229 million in January

KARACHI: Pakistan’s current account deficit narrowed 55 percent year-on-year to $229 million in January mainly due to recovery in exports and robust remittances, the central bank said on Monday.

The State Bank of Pakistan’s (SBP) data showed that current account deficit stood at $512 million in January 2020. The current account deficit was down 65 percent from $652 million in December 2020, mainly due to 12 percent ($697mln) decline in total imports.

“Compared to January 2020, exports grew steadily while remittances continued their record expansion. Imports of wheat and sugar to address domestic shortages, and palm oil, were significantly higher,” the SBP wrote on Twitter. “Machinery imports continued to grow at double-digits, reflecting economic recovery.”

Analyst Tahir Abbas at Arif Habib said the primary reason behind the decline in annual deficit was 2 percent YoY ($52mln) and 19 percent YoY (USD 367mln) rise in total exports and remittances, respectively. “However, total imports increased by 10 percent YoY ($471 million).”

The current account posted a surplus of $912 million in the seven months of the current fiscal year (July to January), compared with the deficit of $2.54 billion in the same period of last fiscal year.

Exports of goods fell to $20 billion in January from $2.2 billion in December last year.

Imports also declined to $4.4 billion in January to $5 billion in the previous month.

Analysts said the monthly import bill will increase going forward but overall the current account is unlikely to exceed 0.8 percent of GDP this fiscal year. Besides, prices, petroleum import quantities are recovering to their pre-Covid levels, causing additional burdens on the import bill.

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 financing facility.

“The outlook for the external sector has improved since the previous set of projections published in SBP’s FY20 annual report. The current account deficit is now projected to be in the range of 0.5-1.5 percent of GDP (earlier: 1 to 2 percent of GDP),” the SBP said in its first quarterly report. “The revision is mainly due to an upward adjustment in workers’ remittances, which are now expected to be in $24-25 billion (earlier: $22-23 billion).”