Pakistan’s current account posted a surplus for the second consecutive month in April and analysts attributed the growth to a decline in imports due to administrative measures.
Data released by the State Bank of Pakistan (SBP) on Tuesday showed that the country posted a surplus of $18 million this month compared to the current account deficit – a balance of the country’s expenditure and income. The difference between — last year was $640 million.
In March, the current account was in surplus for the first time since November 2020 and reached $654 million, the highest since February 2015.
Tahir Abbas, head of research at Arif Habib Limited, said the current account surplus for April was lower than expected as the import backlog was cleared by the State Bank.
Current Account Balance (CAB) recorded $18 million surplus in April 2023 against a surplus of $750 million in March 2023.https://t.co/q3LNv3HOB0https://t.co/Od8ikVvXrd#SBPBOP pic.twitter.com/K9aVeuZJcL
— SBP (@StateBank_Pak) May 16, 2023
Overall, in the 10 months of the current fiscal year, the current account deficit came in at $3.25 billion, down 76 percent from $13.65 billion during the same period last year.
Imports of goods fell 38 percent year-on-year to $3.7 billion in April, according to State Bank data. On the other hand, exports also decreased by 33% to 2.11 billion dollars.
Meanwhile, remittances also fell by 29 percent to $2.2 billion.
Dr. Khaqan Najib, former adviser to the Ministry of Finance, said that it is necessary to reduce the current account deficit by reducing imports, but it is unsustainable.
“The current account has shown a surplus for two months, which has come about because of containment of imports through administrative measures. The decline in imports has resulted in a slowdown in large-scale manufacturing in the country and overall activity has been very weak. is slowing down. level whether it is the service sector or the commercial sector,” he noted.
Dr Najib said, however, this approach was unsustainable as the current account deficit would widen again after the lifting of import restrictions. Instead, the government should increase the productivity of the economy and build the export sector.
“It is not imports at 22-25% of Pakistan’s GDP that is the main problem, it is the 10% export-to-GDP ratio. Also, remittances by ensuring orderly movement of Rs. Maintaining the will also help meet the country’s current account needs,” said a former adviser to the finance ministry.
As the country’s foreign exchange reserves hit record lows last year, the government decided to limit imports to “essential items”. While some restrictions have since been relaxed, companies across sectors have complained that banks are not opening letters of credit (LCs). Several manufacturers, particularly in the automotive sector, have temporarily shut down plants, citing inventory shortages.
Meanwhile, international institutions – the International Monetary Fund (IMF), the World Bank and the Asian Development Bank – have downgraded Pakistan’s growth forecasts, predicting that the economy will grow by 0.4 percent this fiscal year. percent to 0.6 percent.
The country’s foreign exchange reserves have dwindled to $4.38 billion as of May 5, which is not enough to cover even one month’s imports.
The country is trying to revive a key loan program with the IMF, without which it risks default as its reserves run to critical levels.
