C/A deficit shrinks 79% over stagnant imports
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Pakistan’s current account deficit narrowed by a staggering 79% at $160 million in August 2023, indicating that the balance of payments situation has improved but it comes at the cost of economic growth.
The current account deficit stood at $775 million in the previous month as well as in August last year, according to the central bank data released late on Thursday.
Surprisingly, improvement in exports of goods and services played a key role in slashing the deficit in August compared to July.
Import stagnation, despite high demand, also lent support to restricting the deficit at $160 million. Thin imports, however, kept a lid on economic activities, forcing industrialists to extend non-production days and keep output at low levels.
This has put at stake the employment of a large number of workers in industrial units, it has been learnt.
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The government has adopted a strategy under which banks will provide import financing equivalent to the sum of export earnings and inflow of workers’ remittances, which will help to maintain the current account deficit at sustainable levels.
Earlier, the deficit surged to around $1 billion a month, resulting in overheating of the economy. This sparked measures to cool down economic activities in the previous fiscal year and the ongoing year.
SBP data showed that imports of goods rose by just 2% to $4.29 billion in August 2023 compared to $4.20 billion in July. Import numbers were low when compared with the actual demand that stood significantly higher than $5 billion a month.
Exports of goods grew by 14% to $2.42 billion in August compared to $2.12 billion in July, instilling hopes of a gradual revival of global demand.
The inflow of workers’ remittances ticked up to $2.09 billion in the month under review compared to $2.03 billion in the prior month, extending feeble support to the current account.
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In the first two months (Jul-Aug) of current fiscal year, the current account deficit came down to less than half at $935 million compared to the deficit of $2.04 billion in the same period of last year.
The central bank projected in July that the current account deficit would remain in the range of 0.5-1.5% of gross domestic product (GDP) – around $5 billion – in FY24 compared to around 1% ($2.3 billion) in FY23.
The bank also forecast that economic growth would improve to 2-3% in FY24 compared to 0.3% in FY23.
Experts stressed that Pakistan was required to take long-term measures to come up with import substitutes and increase exports to keep the current account deficit at bay and achieve higher economic growth.
Published in The Express Tribune, September 15th, 2023.
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