C/A deficit falls 54pc YoY to $703m in August

KARACHI: Pakistan’s current account deficit narrowed 54 percent to $703 million in August from $1.5 billion a year ago as exports increased and the growth in imports slightly decreased.

Data from the State Bank of Pakistan showed late on Wednesday that the current account deficit fell 42 percent month-on-month in August. The country ran a deficit of $1.2 billion in the previous month.

Goods exports rose 20 percent year-on-year to $2.8 billion in August. Imports fell 4 percent to $5.7 billion. Remittances increased 2 percent to $2.7 billion in August from $2.6 billion in the same month of the last fiscal year. Analysts attributed the decline in the current account gap to slowing aggregate demand and the government’s policy to curb imports.

“The economy is in a slowdown and the government has also kept strict checks on imports. So I do not expect a larger CAD (current account deficit) in near-term. There will be some impact from floods but it would partially be offset by expected aid and higher remittances to support flood victims,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

The current account gap declined by $0.5 billion or 19 percent to $1.9 billion in the first two months (July-August) of this fiscal year mainly due to increase in exports by $0.5 billion and contraction in imports by $0.2 billion, the SBP said on its official Twitter handle.

Due to harsh policy choices, Pakistan was able to restart an International Monetary Fund (IMF) programme after several months of delay. However, the feeling of optimism vanished just before the disastrous rainfall in the country. An estimated $30 billion in losses resulted from the flood.

Because there isn’t enough external financing, the rupee has been under pressure. So far this month, the rupee has lost 8.74 percent of its value against the dollar. Despite obtaining $1.1 billion in funding from the International Monetary Fund in late August, the foreign reserves held by the State Bank of Pakistan as of September 9 were $8.6 billion, which is only enough for about a month’s worth of imports. The current account deficit after the floods would not rise by more than $2 billion, according to Finance Minister Miftah Ismail.

The burden of floods on the trade balance would clock-in at $5.1 billion (1.4 percent of GDP), led by $4.6 billion in additional imports of cotton, wheat, sugar, other crops, and edible oil whereas, the quantum of lost exports was expected to arrive at $1.2 billion, made up of $709 million in case of rice and $500 million in lower textile exports, according to a report from Taurus Securities Limited.

Remittances would likely accelerate as inflows might increase for the purposes of rehabilitation. Further, inflows from grants, aid, and relief support were also expected to help improve foreign exchange reserves, the report said. The current account balance for FY2023 would likely touch down at 4.3 percent of the gross domestic product, compared with the earlier expectations of 3.5 percent of GDP, it added.