The current account deficit continued widening in the recent months due to the higher import bill — with a record increase in January 2022, surging over $11.5 billion during the seven months of the current financial year.
According to statistics updated by the State Bank of Pakistan (SBP), the current account deficit reached the highest level of $2.5 billion in January 2022. Previously, the highest value of the current account deficit stood at $1.9 billion in December 2021.
The current account deficit rose to $2.6bn in Jan22 from $1.9bn in Dec21, largely due to imports in kind that are fully financed. Excluding these, the deficit would have been around $1bn lower in Jan22. For details, see https://t.co/Od8ikVvpBF pic.twitter.com/pJEzuYG1Go
— SBP (@StateBank_Pak) February 24, 2022
Economic analyst A. H. H. Soomro told ProPakistani,
It is a confidence-breaking CAD data despite reasonable monetary tightening and PKR depreciation. Given the further rise in oil prices, it will have pressure on PKR and might nudge SBP to hike its interest rate in the next MPC. We’re not out of the woods yet until the commodity cycle pauses. Only Fed tightening can reverse the trend now.
The trade deficit of goods and services increased by 84% or $14.8 billion during the period of January of the current fiscal year as compared to the same period in the last year. The current account deficit has surged to $9.09 billion during the period of July to January 2022 versus the current account surplus of $1.02 billion reported during the corresponding period last financial year.
Higher cost of imports on the account of petroleum products, raw materials for automobile and textile sectors, and various commodity prices have kept the imports higher which widened the trade deficit as well as the current account deficit of the country.
Meanwhile, the export receipts of $17.7 billion stood 27 percent or $3.8 billion higher year-on-year during the period of July to December 2022.
Inflows of remittances showed a growth of over 9% or $1.4 billion in the said period to stand at $17.9 billion this year.
The staggering current account deficit had posed a persistent worrisome situation for the economic managers and the banking regulator which introduced various strict measures to curb non-essential imports in the country. However, the results are yet to be seen as the import bill has remained out of control since the beginning of the current financial year.
In the recent annual report on the State of Economy, SBP projected that the current account deficit will settle between 2% and 3% of GDP. However, considering the ballooning situation of the trade deficit on each passing month due to a hike in petroleum prices, it is likely the current account will record a huge deficit in the current financial year.