Current account deficit falls by 47pc in January, exports grow slightly

Updated February 22, 2019

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The situation improved after Saudi Arabia and the UAE deposited $4bn in the SBP account to help avert a balance of payments crisis.
The situation improved after Saudi Arabia and the UAE deposited $4bn in the SBP account to help avert a balance of payments crisis.

KARACHI: The country’s current account deficit during January narrowed to $809 million, falling by 47 per cent from the $1.544 billion recorded during December last year, according to the latest data released by the State Bank of Pakistan (SBP).

Cumulatively, the deficit during the first seven months of current fiscal year when compared to the same period last year also declined by 16pc to $1.7bn but its size remained elevated at $8.424bn. At this level, foreign exchange reserves can be said to erode at approximately $1.2bn per month.

“Decisive actions taken by the govt to rescue an economy inherited on the verge of default showing visible positive results” Finance Minister Asad Umar tweeted later at night.

Remarking on the relatively slow pace of growth in exports, despite rupee depreciation of around 14pc in the last seven months, Zubair Motiwala, a large garment exporter based out of Karachi, said the impact of devaluation can take three to six months to show up in the trade data.

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“Big orders are committed for up to six months at a given price” he tells Dawn. “The impact of the devaluations will be felt in three months,” he says after noting that the last devaluation was almost three months ago. “So by next month and the month after that, you will notice a bigger increase. I believe there will be a 10pc increase in the next two months.”

The data shared by the SBP on Thursday shows that the balance of trade (deficit) in goods during the seven months was at $17.613bn compared to $17.588bn in the same period last year, showing the trade deficit grew slightly compared to the same period last year.

However, this was offset by an improvement in the balance on trade in services, where the deficit reduced to $2.09bn from $3.20bn earlier. Remittances also maintained their elevated clip in January, rising to $1.743bn averaging at a 5pc growth during the seven-month period.

The central bank’s data shows that both exports and imports increased during the seven months of current financial year; exports increased by 1.6pc clocking in at $14.15bn from $13.931bn during the same period fiscal year.

The imports, on the other hand, increased to $31.763bn compared to $31.519bn; an increase of $244m, showing some resilience to declines despite large import compression measures in the period such as exchange rate valuation and regulatory duties.

The SBP report shows that overall deficit in goods and services during the seven months was reduced by $1.092bn to $19.704bn during this period. This was against the deficit of $20.796bn in the same period of last fiscal.

The situation slightly improved mainly due to higher inflows particularly the $3bn received from Saudi Arabia and $1bn from the UAE.

However, foreign direct investment in the country during the period under review declined by 17pc with total inflows clocking in at $1.451bn.

It was also noted that the outflows on account of external debt servicing also increased. During the last six months, Pakistan had to pay about $5bn for debt servicing and the final tally is likely to reach $10bn by the end of the current fiscal year.

Published in Dawn, February 22nd, 2019