Pakistan’s current account deficit reduced sharply to $0.5 billion in February 2022, which is the lowest in the financial year 2021-22 and only one-fifth level as compared to January 2022 when it stood at $2.5 billion.
The deficit shrank mainly due to the receipts of exports which were at all-time highs — rising 16 percent last month as compared to January. Remittance also grew by 2.2 percent despite fewer days in the outgoing month against the previous month.
On the other hand, imports fell by 18 percent to their lowest level in February in the current financial year.
In Feb, the current account deficit fell sharply to $0.5bn, the lowest in FY22 and only one-fifth the level in Jan. Exports were close to all-time highs, rising 16% compared to Jan. Imports fell by 18% to their lowest level in FY22. For details, see https://t.co/Od8ikVvpBF pic.twitter.com/9SUPSLbPTC
— SBP (@StateBank_Pak) March 19, 2022
Commenting on the situation, Prime Minister Imran Khan tweeted today: “Timely actions to contain current account deficit bear fruit. The deficit shrank to only $0.5bn in Feb, $2bn lower than in Jan & lowest monthly deficit so far this fiscal yr [sic]. Exports close to all-time high & imports down 21% from their peak & strong growth in large scale manufacturing”.
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.Exports close to all-time high & imports down 21% from their peak & strong growth in large scale manufacturing.
— Imran Khan (@ImranKhanPTI) March 19, 2022
According to the State Bank of Pakistan (SBP), the current account deficit has been restrained to $12.09 billion during the eight months of the current financial year 2021-22. Last year, the current account stood in surplus of $994 million, mainly due to controlled imports and stable receipts of exports and inflows of remittances.
Higher cost of imports on account of petroleum products, raw materials for automobile and textile sectors, and various commodity prices have kept the imports higher, which has, in turn, widened the trade deficit and Pakistan’s current account deficit.
The trade deficit of goods and services increased by 72 percent ($29.8 billion) during July and February of the current fiscal year as compared to the same period last year.
Meanwhile, the export receipts of $17.7 billion stood 28 percent or $4.5 billion higher year-on-year (YoY) during the period of July to February 2022. Exports of services also grew by 18 percent YoY to stand at $4.4 billion during the same period.
Also, inflows of remittances grew by over 2.2 percent in the said period to $20.1 billion this year.
From the outflow side, the imports of goods and services stood at $47.9 billion and $7.08 billion with YoY growths of 49 percent and 39 percent respectively.
The staggering current account deficit had created a persistent worrisome situation for the economic managers and the banking regulator which has introduced various strict measures to curb non-essential imports by 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 face of a substantial increase in the global commodity prices, the growth recovery was accompanied by a build-up in inflationary pressures and a widening current account deficit, as per the SBP’s report on The State of Economy.
The current account deficit is also projected to exceed last year’s level of 0.6 percent of the GDP by a wide margin, mainly due to a higher-than-accounted for trade deficit stemming from the rising trend in worldwide commodity prices.
While the recent adjustment in the policy rate can somewhat constrain the import demand, import payment pressures are expected from capital goods imports and from the continued need to import COVID-19 vaccines. As export receipts are also projected to rise, they are not likely to offset the rise in import payments. On the other hand, the downside risks to the current account gap mainly relate to a sharp drop in global commodity prices.