Pakistan’s current account surplus soared to a 13-month high at $491 million in April, driven by robust receipts of workers’ remittances from overseas Pakistanis, thereby narrowing the cumulative current account deficit (CAD) to a nominal $202 million in the first 10 months of the current fiscal year 2023-24.
According to State Bank of Pakistan’s (SBP) data, the country recorded a surplus in the current account for the third consecutive month in April, buoyed by record-high technology exports at $310 million and a four-year high inflow of foreign direct investment (FDI) at $359 million during the month. However, the current account surplus for the prior month of March 2024 was revised down from a provisional nine-year high of $691 million to $434 million.
The central bank reported that the current account surplus in April was 266% higher compared to $134 million in the same month last year, marking a 13% increase from the prior month of March, amounting to $434 million. Consequently, the CAD plummeted by 95% to $202 million in the first 10 months of the fiscal year 2023-24 compared to $3.92 billion recorded in the corresponding period of the previous fiscal year.
Speaking to The Express Tribune, Arif Habib Limited’s Head of Research, Tahir Abbas, highlighted the significant role played by robust inflows of workers’ remittances, totalling $2.81 billion in April, in maintaining the current account surplus. He noted a substantial 28% growth in remittances compared to the same period last year, reaching the second-highest level of remittances at $2.81 billion in FY24. However, Abbas pointed out that the balance of trade and services widened in April on a year-on-year basis, while primary income turned negative for the month, contributing to the widening of the CAD, excluding workers’ remittances. Nonetheless, a notable 22% drop in the trade deficit played a crucial role in narrowing down the CAD to $202 million in the first 10 months compared to $3.92 billion in the corresponding period of the previous year.
The outstanding performance in the current account balance has been achieved through economic engineering, with the government controlling imports through trade measures and boosting workers’ remittances by cracking down on illegal currency markets. The decrease in the import of goods, below $4.5 billion in April and throughout FY24, adversely impacted industrial output, leading to significant job losses.
Abbas argued that the government, faced with low foreign exchange reserves, had no option but to manage the economy through monetary and fiscal measures. He stressed that without government intervention to control the economy in support of economic growth, the current account deficit would have remained widened, risking default on foreign debt repayments. He predicted that the full-year CAD for FY24 would remain in the range of $500-600 million, with major support from the inflow of workers’ remittances in the last two months (May and June). He anticipated robust remittance receipts in May preceding Eidul Azha in early June, although inflows might decrease post-Eid festivities in June.
Moreover, low commodity prices in global markets, including cotton, petroleum products, palm (cooking) oil, and foods, supported Pakistan in keeping imports low in US dollar denominations. Topline Research noted that the current account surplus in April exceeded expectations.
FDI at 4-year high
Pakistan recorded FDI of $359 million in April, a 172% increase compared to the same month last year and a 39% increase month-on-month. Topline reported that this was the highest monthly inflow in 51 months. China emerged as the single largest investor in Pakistan with $177 million, while the power sector attracted the highest inflows of $194 million.
Published in The Express Tribune, May 18th, 2024.
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