Pakistan’s Current Account Deficit During August 2021 Raises Alarms

Pakistan’s current account recorded a huge deficit of $1.48 billion in August, as imports rise and the country’s trade gap widens.

The deficit expanded to $1.476 billion in August 2021, from a surplus of $255 million in the same month last year, according to State Bank of Pakistan (SBP) data.

In July, the SBP reported a deficit of $814 million, which the bank also attributed to strong economic growth and high international commodity prices.

In the first two months of FY 2022, Pakistan’s current account deficit totaled $2.29 billion, as compared to a surplus of $838 million in the first two months of the prior fiscal year.

The country’s deficit in goods rose to $3.66 billion in August 2021, from $1.73 billion in the same month in the prior year. Similarly, its deficit in services grew to $355 million, from $123 million.

The Managing Director at Khadim Ali Shah Bukhari Securities, A.A.H Soomro, said,

This is a wake-up call for policymakers, one-offs or lacks there off. Commodity inflation or good imports. Actions are needed to normalize the dollar bleeding. Monetary tools must be implemented sooner than later. The economy needs the right prescriptions.

This expansion in the deficit was accompanied by a 133 percent year-over-year (YoY) boost in Pakistan’s trade gap in August.

In August 2021, the country’s merchandise trade deficit hit $4.05 billion, from $1.740 billion in the same month in 2020.

This was driven primarily by a YoY spike in imports of 89.9 percent, which pushed the import bill to $6.31 billion in August.

The government attributed the increase in Pakistan’s import bill to high international commodity prices and imports of machinery and raw materials by industries.

Worker’s remittances increased to $2.66 billion in August 2021, as compared to $2.10 billion in the same month last year.

The recent deterioration in the balance of payments has also affected the value of the Pakistani Rupee, with the local currency crashing to an all-time low this week at Rs. 169.12 against the US Dollar.

In contrast, the country’s foreign reserves have stayed comparatively strong in the past months, although they fell by $38 million to $27,064.9 million in the week that ended on 10 September.