Current account deficit contracts 27% to $11.58b

Gap narrows due to drop in imports, rise in worker remittances

KARACHI: Pakistan’s current account deficit (CAD) narrowed 27% to $11.58 billion in first 10 months (Jul-Apr) of the current fiscal year due to a drop in import of goods and services and a surge in overseas worker remittances.

The current account deficit had been recorded at $15.86 billion in the same period of previous fiscal year, according to the State Bank of Pakistan (SBP).

The drop in the deficit - the difference between the government’s higher foreign expenditures (mainly import payments and foreign debt repayments) and lower earnings (mainly export proceeds and remittances) - came after the central bank made imports expensive by letting the rupee depreciate massively against the US dollar since December 2017 and aggressively hiking the key interest rate.

The two decisions - cumulative interest rate hike of 6.5 percentage points to 12.25% and rupee depreciation by 44% to 151.95 against the dollar since December 2017 - also helped attract higher worker remittances through banking and other legal channels.

Current account deficit declines 22.5% to $8.84b

The continued rate hikes and rupee depreciation, however, failed to achieve the desired goal of reviving sluggish exports, which was a must to sustain the reduction in the current account deficit.

The central bank said the import of goods decreased around 5% to $44.03 billion in the first 10 months of FY19 compared to $46.30 billion in the corresponding period of last year.

The import of services fell 18.57% to $7.67 billion compared to $9.42 billion last year, it said.

Moreover, the receipt of overseas Pakistani worker remittances increased 8.45% to $17.88 billion in Jul-Apr FY19 compared to $16.48 billion in the same period of previous year.

Export of goods, however, suffered a fall of 2% to $20.09 billion compared to $20.49 billion last year.

The drop in exports came despite the announcement of support packages worth billions of rupees, especially for the five zero-rated sectors, by two successive governments - the previous PML-N government and the current PTI administration.

Deficit widens in April

The current account deficit widened 42.48% to $1.24 billion in April 2019 compared to $871 million in March, the central bank reported.

It, however, fell over 45% to $1.24 billion in April compared to $2.27 billion in the same month of previous year.

Published in The Express Tribune, May 23^rd, 2019.

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