Deficit hits 19-month low

Gap shrinks to $276m in Nov on back of significant drop in imports

KARACHI:

Pakistan has surprisingly reported a 19-month-low current account deficit (CAD) at $276 million for November 2022, thanks to a significant reduction in imports through administrative controls, but it came at the cost of economic growth.

The State Bank of Pakistan (SBP) reported that the current account deficit was 86% lower at $276 million in November compared to $1.92 billion in the same month of last year. It was 59% lower when compared with the deficit of $569 million recorded in October 2022.

“Cumulatively, in the first five months (July-November) of the current fiscal year 2023, it (current account deficit) contracted by more than half to $3.1 billion against $7.2 billion in Jul-Nov 2021, with imports falling by $4.8 billion (-16%) and exports broadly unchanged,” the central bank said on its official Twitter handle.

The significant drop in imports through administrative controls to manage the low foreign exchange reserves has, however, badly impacted economic activities.

Almost all industries are complaining about the persistent delay in import of raw material and said that their businesses are shutting down. This may trigger unemployment in the country, businessmen warned.

Pak-Kuwait Investment Company Head of Research Samiullah Tariq asked what were the other options under the current circumstances (low reserves), except for controlling imports.

The reserves have depleted to a four-year low of $6.7 billion, raising the spectre of default on international payments and foreign debt repayments.

PML-N’s former finance minister Miftah Ismail has been highly critical of his party’s current Finance Minister Ishaq Dar for his economic policies. Ismail said Dar’s policies were leading the country towards possible default.

Arif Habib Limited Head of Research Tahir Abbas said that the current account deficit declined to a 19-month low in November 2022.

“The primary reason was a 32% decline in imports in November compared to the same month of last year. However, exports and remittances decreased by 13% and 14% respectively.”

Tariq said that surprisingly the cumulative export earnings and workers’ remittances (at $4.35 billion) surpassed total imports ($4.26 billion) in November.

“This suggests the balance of payments has significantly improved in recent months, which is a must to mitigate the risk of default.”

Financial experts had projected a current account deficit of around $600-700 million for November, considering the trade deficit of $5.2 billion for the month.

There was almost a $1 billion gap between the trade deficit reported by the Pakistan Bureau of Statistics (PBS) at $5.2 billion for November compared to the gap of $4.3 billion reported by the SBP.

The reduction in payment settlement has paved the way for the significant drop in the current account deficit.

“PBS numbers are based on the Customs Department’s import and export data, while the central bank records import and export numbers when traders settle payments. So one would always find a difference between the PBS and SBP numbers,” he said.

He anticipated that the government may control the current account deficit at an average of $400 million a month in the remaining seven months of the current fiscal year. “Accordingly, the deficit may come to around $6-7 billion for FY23.”

Rupee down, gold up

The uncertainty over the timing of the next review of Pakistan’s economy by the International Monetary Fund (IMF) and low foreign exchange reserves have continued to mount pressure on the domestic currency, as it hit a 10-week new low at Rs224.94 against the US dollar in the inter-bank market on Friday.

Pakistani currency decreased by a fresh 0.10% (or Rs0.23) in the day from Thursday’s close at Rs224.70 against the greenback, according to the central bank’s data.

It has cumulatively dropped by 3.3% (or Rs7.18) in the past two months to date compared to the high at Rs217.79 on October 11, 2022.

The rupee depreciation has, however, kept gold shining. The precious metal has become more expensive in Pakistan than in Dubai, as it hit a new all-time high of Rs171,900 per tola (11.66 grams), All Pakistan Sarafa Gems and Jewellry Association (APSGMA) reported on Friday.

The association reported the gold price increased Rs500 per tola on Friday. Gold at Rs171.900/tola is over cost by Rs3,000 compared to its current price in Dubai.

Published in The Express Tribune, December 17^th, 2022.

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