The current account deficit witnessed a massive decline of 77.9% or $10.4 billion in the financial year 2019-20 compared with the previous financial year mainly due to a significant reduction of the import bill supported by the record inflows of remittances.
The deficit stands at 1.1 percent of GDP and recorded the lowest value in the last five years.
According to the State Bank of Pakistan, the current account reported a deficit of $2.96 billion in the closing financial year as compared to the deficit of its previous financial year which recorded a huge value of $13.43 billion.
The overall balance of trade for commodities and services fell by 30% or $9.83 billion during the twelve months of the ending financial year. During the period, exports of commodities and services stood at $22.5 billion and over $5.4 billion compared with $24.2 billion and $5.96 billion of FY19 respectively.
On the other hand, the import bills of commodities and services stood at $42.4 billion and $8.2 billion as against of $51.8 billion and $10.9 of the last financial year respectively,
Remittance inflows stood at $23.1 billion in the period which provided major support to the current account’s position despite the lockdown in different countries. The remittances inflows recorded an annual growth of 6 percent or $1.3 billion in FY20.
The current account deficit is one of the worrisome factors for the economy which has been contained despite the challenging situation. The role of loans from the International Monetary Fund (IMF) played a very crucial role in the stabilization of the current account.
Moreover, imports of commodities reduced significantly in the wake of Covid-19 pandemic and temporary fall in oil prices whereas remittances played a vital role to shore up the current account position.
The government should keep strict control over the imports of the commodities to maintain the deficit position in the current financial year, however, the depreciation of Rupee against Dollar should also be controlled to contain the import bill.
On the other hand, exports of the country failed in growth momentum mainly due to Covid-19 however the government’s measures to provide incentives to the export-oriented sector will reap the benefits in the latter months of the current financial year.
The global think tanks predict the economic recovery of the country from the next year if the situation of the pandemic is overcome in the coming months. The government should gear up its efforts to expedite economic recovery with all available options such as incentives and regulatory measures.