Current account deficit declines by 55pc in first 2 months of FY2020

Updated September 19, 2019

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The CAD — for July-August period — reduces by $1.56bn to $1.29 billion from $2.85bn during the same period last year. — AFP/File
The CAD — for July-August period — reduces by $1.56bn to $1.29 billion from $2.85bn during the same period last year. — AFP/File

The current account deficit (CAD) shrank by a massive 55 per cent in the first two months of the current fiscal year as compared to the corresponding period last year, reported the State Bank of Pakistan (SBP) on Thursday.

The CAD — for the two month period — reduced by $1.56bn to $1.29 billion from $2.85bn during the same period last year.

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.

The major cause of the shrink is the decline in the trade deficit.

According to the trade summary issued by the commerce ministry for the two months, exports jumped to $3.738bn as compared to $3.650bn during the same period last year — showing a increase of 2.41pc or $88 million.

Similarly, imports for the period under review declined to $7.553bn as compare to $9.768bn during the same period last year — showing a decline of 22.68pc or $2.215bn.

In total, the trade deficit for the two months of the current fiscal year stood at $3.815bn as compared to $6.118bn during the corresponding period last fiscal year.

The heavy reduction in CAD will 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 the deficit will help bring some stability to the exchange rate and provide support for both import-reliant and domestically sufficient manufacturers.