Current account posts $881mln surplus in July-February

KARACHI: Pakistan’s current account posted a surplus of $881 million during the first eight months of the current fiscal year of 2020/21 as against a deficit of $2.7 billion a year earlier, the central bank reported on Sunday, as growing remittances and foreign debt inflows counterweighed the impact of widening trade deficit.

“Surplus in current account is helped by a continuous strong growth in workers’ remittances and a sustained recovery in exports since November 2020 in year-on-year terms, which more than offset increase in imports due to domestic food shortages and recovering economic activity,” the SBP wrote in a tweet.

Remittances rose 24.1 percent to $18.7 billion in the eight months of this fiscal year. Exports of goods fell 2.3 percent to $16 billion in July-February FY2021. Imports stood at $32.1 billion, up $8.6 billion from a year earlier.

Current account deficit narrowed to $50 million in February compared to $197 million in the corresponding month a year earlier and $210 million in January. The SBP’s data showed that current account deficit shrank to 0.2 percent of GDP compared to 0.9 percent a year ago.

Robust growth in remittances ahead of Ramazan was the main driver of reduction in current account gap, according to the SBP. In February, remittances increased 24.2 percent to $2.2 billion, while exports of goods rose 8.6 percent to $2.1 billion. Imports also increased 26.8 percent to $4.5 billion. The latest current account numbers marked a sharp turnaround from December when the country posted a hefty current account deficit of $652 million.

Trade deficit is widening due to surging imports of capital goods and industrial raw materials as the economy is recovering from deadly implication of coronavirus lockdown and international commodity prices are rising. The central bank expects the current account deficit in FY2021 at less than 1 percent of GDP on account of growing remittances, exports recovery and resumption of the International Monetary Fund’s (IMF) program. “The recent staff-level agreement on the resumption of the IMF program has boosted prospects and ensured that external financing needs will be comfortably met,” the SBP said in a latest monetary policy statement.

“These favorable developments and improving sentiment contributed to an additional 3.4 percent appreciation in the PKR since the last MPC [monetary policy committee] meeting, which now stands close to a one-year high, and helped to keep SBP’s foreign exchange reserves around $13 billion, levels last seen three years ago.” IMF restored the $6 billion loan program for Pakistan after a gap of one year as the country agreed to introduce tax reforms to generate additional revenues. In March last, IMF paused discussions with Pakistan on the second review of the three-year extended fund facility program following the coronavirus infection. That review’s conclusion is to release the third tranche of $500 million under the facility.

Foreign debt and liabilities increased $3 billion or 2.6 percent during the six months period ended in December last, according to SBP.

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