Current account deficit shrinks 78pc in February

KARACHI: The country’s current account deficit (CAD) shrank by 78.46 per cent to $545 million in February from a whopping $2.531 billion in January mainly on account of a sharp decline in the imports.

However, during the first 8 months of FY22, the CAD crossed the $12 billion mark leaving no sign of improvement in the external account. In February 2021 the CAD was just $34m.

The State Bank of Pakistan’s data issued on Saturday showed that the CAD widened to $12.099bn in 8MFY22 against a surplus of $994m in the same period of last fiscal year.

Prime Minister Imran Khan on Saturday said that the government’s timely actions to contain the current account deficit bore fruits as the monthly deficit shrank to the lowest figures of $0.5bn in February during the current fiscal year.

Widens to $12.1bn in 8MFY22

The prime minister further said that country’s exports had been close to an all-time high with imports nosediving by 21pc.

“Timely actions to contain current account deficit bear fruit. Deficit shrank to only $0.5bn in Feb, $2bn lower than in Jan & lowest monthly deficit so far this fiscal yr (year). Exports close to all-time high & imports down 21% from their peak & strong growth in large scale manufacturing," the prime minister posted on his Twitter handle.

However, the rising deficit has put the country once again in trouble as it was in 2018 when the CAD was around $20bn. The PTI government succeeded to bring it down to $1.916bn in FY21, but the surging imports and higher external payments again pushed it up since the start of the current fiscal year.

However, sources in the financial sector believe that the record increase of the current account deficit in January was due to end-year external payments, which always remain higher than other months.

At the same time, the imports also declined in Feb compared to January. The import of goods and services fell by $1.317bn in February compared to January.

However, the imports of goods and services during 8MFY22 were increased by 47.7pc over the previous year. The cumulative figure of imports of goods and services during the 8 months were $54.986bn against $37.212bn in the same period of last fiscal year.

The export of goods and services grew 26pc in 8MFY22. The comparison of growth in the import and export showed the wide trade deficit which was the main reason for increasing current account deficit.

According to SBP data, the trade deficit in 8MFY22 was $29.877bn compared to $17.318bn in the same period of FY21.

The record increase in the oil prices and commodity prices on the international market were the main reasons for the huge imbalance in the trade of goods and services. The government has been borrowing desperately to meet the growing imbalances on external fronts of the economy while it targets to receive over $30bn through workers’ remittances in FY22.

So far the inflows of remittances were in the targeted direction but the other sources like foreign direct investment recorded a poor growth so far in the current fiscal year.

The 8-month trade gap of about $30bn requires huge inflows to meet the target. The trade gap is expected to increase by the end of the current fiscal year which would further widen the current account deficit.

Published in Dawn, March 20th, 2022