After a month’s respite: Pakistan again posts current account deficit

Current account gap remains relatively small at $319 million in November

KARACHI: Pakistan failed to sustain the surplus in its current account balance in November 2019 mainly due to a notable drop in workers’ remittances and decline in exports on a month-on-month basis.

The country recorded a relatively small current account deficit of $319 million in November compared to a surplus of $70 million in the prior month, which came after a gap of over four years, according to the State Bank of Pakistan (SBP).

The return to deficit has, however, failed to make a big difference in the narrowing current account deficit in the current fiscal year to date (Jul-Nov) compared to the level seen in the first four months.

The current account deficit dropped a massive 73% to $1.82 billion in first five months of FY20 compared to $6.73 billion in the same period of previous year. In the first four months, the overall deficit had narrowed 74%.

“The deficit in November is well in line with market expectations. Anything (current account deficit) below $500 million a month is okay,” BMA Capital Executive Director Saad Hashmi said while talking to The Express Tribune.

“This is well within the targeted range, considering the International Monetary Fund’s (IMF) forecast of a deficit of $6.5 billion for the full fiscal year 2019-20.”

Arif Habib Limited Head of Research Samiullah Tariq said the current account surplus in October was unsustainable given that “our imports are two times compared to our exports.”

What remained important was that the small deficit in November did not impact much the downward trend in the overall current account deficit in first five months of FY20, he said. “The significant drop of 73% in the five-month deficit stemmed from a massive 21% reduction in imports of goods and 5% improvement in exports of goods compared to the same period of last year,” he said.

Imports dropped to $18.31 billion in the five months under review compared to $23.21 billion in the same period of previous year. Exports, however, improved to $10.30 billion compared to $9.85 billion, according to the central bank.

Besides, workers’ remittances remained steady at $9.29 billion in Jul-Nov FY20 compared to $9.28 billion in the corresponding period of last year. Remittances, however, dropped 9% to $1.82 billion in November compared to $2 billion in October, according to the SBP.

“The five-month current account deficit of $1.82 billion suggests the gap for the full fiscal year will remain below $5 billion. If this happens, it will be a big achievement considering the IMF forecast of a deficit of $6.5 billion,” he said.

The deficit may, however, start widening on a month-on-month basis considering the gradual improvement in economic activities in the remaining part of the current fiscal year. In this case too, the deficit is expected to remain well within the IMF’s forecast.

“Imports will start increasing again when the economy enters the growth phase from the current phase of stabilisation,” he said.

Tariq said the government would have to fix structural issues in the economy once and for all. “We have to increase exports on a sustainable basis, create import substitutes to make a permanent reduction in imports, attract higher remittances and bring foreign direct investment (FDI) in different projects to have a sustainable current account balance,” he said.

The research head said the government had taken tough decisions on undertaking structural reforms on multiple fronts like letting the market decide the rupee-dollar parity and addressing the circular debt issue in the power sector.

“The government seems to be fixing the grave issues in the economy. Fiscal year 2021 will be a year of major economic turnaround in Pakistan,” he remarked. 

Published in The Express Tribune, December 20^th, 2019.

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