Pakistan’s current account deficit (CAD) — the gap between the country’s higher foreign spending and lower income — narrowed by 42 percent to $703 million on a month-on-month basis as a result of the inflow of funds. There has been a significant reduction in emissions and growth. August this year.
A significant reduction in the current account deficit was, however, achieved at the cost of economic growth.
The forced cut in imports has started affecting the country’s industrial production and causing their units to shut down.
The latest reports also indicate a slowdown in export earnings.
The State Bank of Pakistan (SBP) reported that the current account deficit was $1.21 billion in the previous month of July 2022.
Overall, in the first two months (July-August) of the current fiscal year 2023, the current account deficit narrowed by 19 percent to $1.91 billion as against $2.37 billion in the same period last year.
The central bank said in its statement, “The narrowing of the deficit in the month of August and in the first two months as a whole “was mainly due to a $0.5 billion increase in exports and a $0.2 billion decline in imports [over the two months]. has been achieved due to,” the central bank wrote in its statement. Official Twitter handle.
A significant increase of $2.81 billion in export earnings from $533 million on a month-on-month basis in August this year was apparently due to a bleak outlook for the US dollar against the local currency in the country’s interbank market.
It may be noted that most of the Pakistani exporters have not asked their international buyers to make the due payments in the last two months. June-July 2022. They had chosen not to sell dollars in the interbank market, waiting for the maximum possible depreciation of the rupee against the US dollar.
Later, they aggressively sold the US dollar after the rupee fell by a cumulative 13.75% (or Rs 29) for 10 consecutive working days in August to close at a record low of Rs 239.94 on July 28, 2022. Partial restoration campaign resumed.
Exporters usually wait for the right time to sell dollars, as they have 90 days to realize their export earnings from their global buyers.
Secondly, a strong recovery of 8% in workers’ remittances to $2.72 billion in August compared to July also helped narrow the current account deficit in the month.
Third, imports have declined mainly due to the total ban on non-essential and luxury goods, while aggressive slowdown in essential imports through administrative controls has also played a key role in narrowing the current account deficit.
A notable reduction in the current account deficit in August was more than market expectations.
Accordingly, this partly helped stabilize the rupee at its current historic lows, as the domestic currency’s fall in the freefall eased significantly for the 15th consecutive working day.
The currency closed at Rs 239.71, down 0.03 percent (or Rs 0.06) on a daily basis against the US dollar in the interbank market on Thursday.
It is still Rs 0.23 away from the July 28, 2022 low close of Rs 239.94.
Farid Alam, CEO of AKD Securities, said that the government’s corrective measures to cool down the overheated economy, including controlling imports and supporting exports, have led to a reduction in the current account deficit. Helped to reduce.
“This move suggests that the current account deficit will remain under control for the next three to four months,” he added.
Alam said that the government should strongly support import substitution industries to reduce the country’s dependence on heavy imports. He believed that this strategy would not only keep the current account deficit under control but also save foreign exchange. “This will also increase foreign reserves,” he added.
The recent drop in international crude oil prices should also reduce the country’s import bill and current account deficit, as the country relies heavily on imported energy to meet domestic demand.
“The benefit [of the fall in domestic oil prices], however, may not reach the public due to the tight fiscal position of the government,” Alam noted.
However, he criticized the government for allowing the US dollar to go abroad in recent days. He also disliked the government’s leniency in dealing with commercial banks and currency dealers for manipulating the rupee-dollar parity.
“The stage is set for the return of former finance minister Ishaq Dar to Pakistan. He knows how to deal with banks and currency dealers,” he added.
The rupee has shown signs of consolidation at current levels below around Rs 240, as it has resisted falling from a historic low of Rs 239.94 against the greenback in the past few days.
Earlier, experts predicted that the rupee would touch the technical level of Rs 240 as it has lost a significant 11.70 percent (or Rs 25.11) in its value in the last 15 consecutive working days.
A possible rebound of the Dar, which is known to artificially control the rupee against the US dollar, could help the local currency recover to Rs 210-220, Alam said.
“Had the floods not made their way to affect the economy, the rupee would have been hovering around Rs 200 these days,” he added.
