The current account maintained a surplus for the second straight month with a huge surplus of $805 million from July to August of the current fiscal year 2020-21.
According to data updated by the State Bank of Pakistan, the country reported a surplus of $297 million in August and $508 million (revised figures) in the month of July. Last year, the country recorded a deficit of $1.2 billion in the same period.
The handsome surplus shows stability in external accounts backed by the various measures of the economic managers of the present government. The improvement in the trade bill and the handsome inflows of the remittances contributed to the surplus during the first two months of the current financial year.
The import of goods reduced to $6.73 billion from $7.7 billion and the import of services also decreased to $1.22 billion from $1.81 billion during the period. The reduction of the import bill also supported the balance of payments of the country, helping contain the deficit.
Remittance inflows, on the other hand, reached an all-time high of $4.83 billion in the said period, which ultimately turned the current account into surplus.
Meanwhile, the export of goods stood at $3.42 billion and services stood at $758 million in July and August. The exports declined year-on-year however they slightly picked up on a month-to-month basis as the economic activities are being restored globally and locally.
Commenting on the present positive trend of the current account, SBP said,
Efforts to attract workers’ remittances, flexible exchange rate and relatively benign import prices explain the improving current account balance.
The remittance numbers are still growing while imports are growing slower. It gives confidence to Rupee investors and dispels depreciating expectations, said A.A.H Soomro, Managing Director at Khadim Ali Shah Bukhari Securities. The currency ought to remain stable at Rs. 165 per US dollar, with spacing for appreciation. The slowdown in remittances is imminent as exports ought to compensate for the loss, he added
This is the fourth surplus of the current account reported by the present government. Previously, it reported a surplus of $508 million in July 2020, $13 million in May 2020, and a surplus of $99 million in October 2019 after a four-year gap.
It is expected that imports and exports of goods and services may witness a gradual growth in months to come, though the government should focus to contain the import bill and enhance exports along with remittances to maintain the positive trend of current account surplus, which is indeed a herculean task.
Due to the huge value of surplus, it is likely the first quarter of the financial year will close in surplus which will also be a record in the history of the country.
Going forward, in the first half of FY21, a recovery is expected from the devastations of Monsoon rains in the country. With the improving consumer demand in the west along with the Asian countries, Pakistan’s exports will increase which may turn out to be the crucial factor for currency parity and FX reserves in the country.
As the State Bank of Pakistan has recently kept the Real Rates of Interest near zero %, this may likely increase the chances of higher interest rates in the upcoming monetary policies mainly on the likely increase in inflationary pressures along with the induced pressure by the IMF authorities.
The increasing foreign inflows (due to the expats coming to Pakistan along with the newly launched Roshan Digital Account) may likely improve currency parity for a short period of time.