KARACHI: The current account deficit (CAD) shrank by a massive 73 per cent in the first month of this fiscal year, reported the State Bank of Pakistan on Tuesday.

The CAD plunged by 72.81pc to $579 million in July, as compared to $2.13 billion in same period of 2018-19. This was in line with the downward trend witnessed throughout 2018-19 when the deficit stood lower by 31pc to $13.58bn, from $19.8bn in FY18 – recording a decrease of $6.3bn.

This must be a relief for the government which has been struggling to plug the deficit through borrowing from donor agencies, commercial banks and friendly countries. Primary contributor to the noticeable decline was the governmental measures aimed at curbing the imports.

On a monthly basis, the decrease in current account deficit, though still sizeable, fell short of the yearly figure as it dipped by 37pc from $921m in June this year. Financial experts believe if the country is able to bring down CAD to single digits in FY20, then the situation would be manageable for the government.

According to the July data, exports jumped 10pc to $2.233bn, as compared to $2.012bn whereas imports plunged to $4.08bn, from $5.497bn in same month last year. As a result, balance of trade in goods fell to $1.847bn, as against a deficit $3.485bn. The balance of trade in services, on the other hand, went down 8.5pc to $473m, from last year’s level of $517m.

The decrease in imports has been the primary driver of the lower CAD but the trade bodies have criticised measures to cut on imports, which, they say, would impede economic activity and thus hurt exports as well.

Export industry also depends on imports for manufacturing its products as they use around 33pc of imported constituents.

The heavy reduction in CAD would also help State Bank accumulate its dollar reserves which have failed to hit double digits despite continued inflows from friendly countries and donor agencies.

Bankers say the fall in CAD will help bring some stability to exchange rate and support for both import-reliant and domestically sufficient manufacturers.

Published in Dawn, August 21st, 2019

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