Current account returns to surplus

Pakistan's current account balance returned to a surplus of $75 million in August 2024, buoyed by strong inflows of workers' remittances and a rise in IT exports. This marks a significant shift after three consecutive months of deficit, suggesting that the supply of foreign currency into the economy outpaced demand, despite payments for pending imports during the month.

According to data from the State Bank of Pakistan (SBP), the surplus in August helped reduce the cumulative current account deficit for the first two months (July-August) of fiscal year 2024-25 to $171 million, an 81% reduction compared to $893 million in the same period last year.

Workers' remittances, sent by overseas Pakistanis to their families, surged by 40% to $2.94 billion in August 2024, compared to $2.09 billion in August 2023. IT exports also saw a 27% rise, reaching $298 million during the month. Despite an overall decline in services exports to $620 million from $663 million last year, the IT sector's contribution rose to 48% of total exports.

Speaking to The Express Tribune, Tahir Abbas, Head of Research at Arif Habib Limited, explained that the current account surplus in August could have been larger if not for pending import payments. The central bank data indicated that larger payments were made for textiles, metals, machinery, and petroleum products, leading to an increase in the overall import bill compared to the same period last year.

On the export front, the SBP reported a decline in textile and food exports among other categories. Abbas predicted that the current account balance would remain near breakeven in the coming months, due to government and central bank policies limiting imports to match export earnings and remittance inflows.

Additionally, the decline in global oil prices has significantly reduced Pakistan's energy import bill, providing further support to maintaining a favourable current account balance. Abbas noted, "A $5 drop in the price of international crude oil reduces Pakistan's energy import bill by $950 million annually." He highlighted that Brent crude oil prices have fallen by over $20 per barrel since their peak in April 2024.

Looking ahead, Abbas said the government is expected to keep the current account deficit for FY25 within the central bank's forecast range of 0-1% of GDP (up to $3.5 billion), with continued strong inflows from workers' remittances and IT exports. The recent migration of a large number of Pakistanis to overseas job markets will also bolster remittance inflows, as they send funds home to support their families.

Abbas also pointed out that the current account deficit in June and July was due to large payments of about $1 billion per month related to the repatriation of profits and dividends by foreign companies. This figure declined by 32% in August, but the overall repatriation still rose by 37% compared to August 2023, contributing to a relatively modest current account surplus of $75 million.

RDA inflows

Overseas Pakistanis invested another $165 million in August through the Roshan Digital Account (RDA), further supporting the balance of payments and helping return the current account to surplus. The inflows have also bolstered the country's foreign exchange reserves, which surged to a 26-month high of $9.47 billion.

Since the launch of RDA in September 2020, total gross inflows have reached $8.58 billion by the end of August 2024. Of these, non-resident Pakistanis have withdrawn $1.65 billion and used $5.44 billion to support their families back home. This has left a net repatriable liability of $1.49 billion.

RDA holders have invested $370 million in high-return Naya Pakistan Certificates (NPCs) and $638 million in Shariah-compliant NPCs. They have also invested $41 million in the Pakistan Stock Exchange, maintained $421 million in their RDA accounts, and placed another $33 million in other avenues.