Current account deficit shrinks massive 64pc
KARACHI: The country’s current account deficit (cad) in the first quarter of current fiscal year declined by a huge 64 per cent mainly on the back of a 21pc reduction in the imports bill.
The State Bank’s latest data issued on Friday showed the current account deficit for July-September FY20 clocked in at $1.548 billion compared to $4.287bn in the same period last fiscal year; a decline of $2.739bn.
The reduced current account deficit is a positive omen for the government, which is struggling with slow economic growth and high inflation. However, despite massive decline in rupee’s value, the country’s exports have failed to register any noticeable increase during the period.
The data showed the large decline in imports was the real force behind the 64pc reduction in the deficit whereas, exports of goods and services during the quarter increased by a meagre 1.38pc or $99 million. The exports services during the quarter clocked in at $7.259bn compared to $7.160bn in the same period last fiscal year.
Contrary to exports, the country’s imports fell by 19pc to $13.461bn. On one hand, this massive decline has helped government reduce the current account deficit, whereas on the other, it has also slowed down the overall economic activity in the country.
Furthermore, with a lacklustre increase in exports, the government may find it difficult to meet the current account deficit.
The government was successful in bringing down the deficit from a historic high of $19.897bn in FY18 to $13.830bn in FY19.
The government has been facing major challenge in the form of controlling the huge debt servicing, which makes up for the major chunk of current account deficit. In FY19, the current account deficit was $13.8bn whereas the debt servicing, in the same fiscal year, was $11.588bn.
In the ongoing fiscal year, the government has borrowed additional funds from the donors, commercial banks and friendly countries, which would certainly increase the total size of debt servicing.
The debt servicing increased by 54pc in FY19 compared to previous year reflecting the size and cost of commercial borrowings. The debt servicing in FY18 was at $7.495bn.
In FY20, the government has borrowed from the International Monetary Fund, the World Bank, the Asian Development Bank, commercial banks and other sources to meet the current account deficit, which could not be met despite overseas Pakistanis sending over $20bn in remittances each year.
Published in Dawn, October 19th, 2019
Comments (85) Closed
This only indicates slowing economy as there is no increase in exports.
It's not a good indicator bit a bad indicator.
It's like no accidents as there no cars on roads.
This if true is really a ray of hope for desperate PTI governance on economic front.
It has to get worse before it gets better, always.
Where Pakistan is going.
Govt of Pakistan should make Paypal work in pakistan and get Ebay and amazon started. Amazon and Ebay are amazing tools for any local man to export their products to outside world. Also local vehicle companies and other manufacturing units should improve their game and start improving quality of their product and come in competition with international market.
Reduced imports of what? petroleum products? Do differed payments have a role to play in this?
Good, but no real growth of manufacturing!
You know I love it.
Govt is making tough politically unpopular decisions which are necessary for long term well being of the nation. Pakistanis are lucky to have the first true and bold leadership after Jinnah
Very good progress on current account deficit but what about fiscal deficit which results in inflation.
Due to zero industry
This is a pill we have to take. Things have gone as-usual for far too long.
import bill reduce since you cannot afford anything.
Very good indicator for Pakistan. Past few months harsh decisions taken by Imran Khan are showing good results now
Decline in imports without any substantial increase in exports is a clear sign of recession. This means the reduced imports is due to closure of manufacturing activities, joblessness, increased poverty, lower government spending on public utilities etc. The lower CA deficit in this situation is nothing to be proud of as foreign exchange reserve too decline. Government should potray the real picture rather than give lollipop to citizens.
Import reduced, export flat, high inflation, Will market go dry...what’s the demand and supply figures... deficit reduction due to higher exports would have been better situation. !!!!!
Thanks Imran Khan Sir, you are the hope of Pakistan
"Current account deficit shrinks massive 64%" - this indicates that our economy is recovering and will prosper in the future if PTI goverment is allowed to complete their 5 years tenour. Don't forget both previous PPP and PMLN governments made a mess and looted tax payers money and this is why they are getting together to safeguard their looted money and creating trouble for PM Imran Khan. Say NO to corruption and selfish politicians!
(Note: I regularly advocate my impartial views against injustice, inequality, oppression and nepotism without supporting any of the political parties. For me my country comes first - be aware of such fake ID's and their silly posts!).
Good, it will help to stop currency depreciations but if income not rise and expenses not reduced, big problems are on the way. Expenses needs to be done on education and skills, and if some room then on health and business
hope this is real import reductions and export increase and not due to deferred payments
Even if it did not so quickly, we stand with our elected government.
All data n statment released by ministers or government servants always gives promising state of economy but once the same figure released by international agencies same tell different story.
@ABCD, WHY would it NOT be true?
PTI Government is having to pay 6 KROR EACH DAY in interest-payments alone for the massive LOANS taken by the previous thieves and looter rulers from PML(N) & PPP Parties.
@LAHORI KID,
I am from Lahore and it is going to get better and better.
Welldone. Imports need to go down further. All non essential import commodities should be heavly taxed to force their production inside the country.
Musharraf left much bigger current account deficit in proportion to GDP and revenue and zardari government reduced it with slightly greater place using IMF same formula of chocking demand by massive devaluation and interest rate rise as a result growth collapsed for many years like happening now at the expense of public . We never rated zaradri economic polices good so we can appreciate present policies
Along with massive shrink in GPD, massive shrink in FDI, massive shrink in jobs, massive shrink in bushiness, massive shrink in income of masses, massive shrink in economy activity, massive shrink in basic crops and so on and so on ..............
At least some relief and a ray of hope on the horizon. Nevertheless, manufacturing must be improved in order to get out of the hole.
@Anti-Corruption_Pakistani, you forgot that Pakistan is not paying for oil purchase yet.
@Anti-Corruption_Pakistani, Ironic, openly supporting PTI and showing affection towards it and telling others to not to vote for anyone else and then mentioning this that you dont support any political party, nice.
Well on topic, it clearly mention that it happens due to deferred payment of oil, as only current account got shrink because of reduction in import bill while one other hand fiscal account deficit on rise, but what happens after two years when payments for that deferred oil facility starts, how we going to pay for it, its more than debt trap, its like a death trap for our economy.
No Economic Activities means less import
Well this is a yoy base analysis for the current month showing healthy signs of the economy which it self may not sustain in the longrun as this mometary green singles are because of import-restrictive policy measures adopted by the current government rather going for exported led growth policies. Additionally Fiscal year wise comparison portrays a dismyal picture of the economy too.
Nya Pakistan is gone with the wind.
@Daddy Cool, - it was clear the original plan wasn’t working from previous govts whereby we were no Dubai or China in economic terms yet our trade deficits was huge...!
We need to control or reduce the deficit growth offset by better trade policies or investment opportunities.. even poor household finances can’t take up to a year to stabilise..
Yeah! By decreasing imports.
people cant afford anything
deferred payments
You can probably get a few extra billion from Zardari and Shariff.
It will not get better. No exports and soon to pay the interest due on these loans.
@Anti-Corruption_Pakistani, imports reduced due to can not afford to buy from outside. When you don’t have money then you can’t spend. It means poverty increased.
@Daddy Cool,
Incorrect. There was no decline in exports. The decrease is due to currency devaluation, and is a necessary remedy to correct years of overvalued currency that was artificially sustained by the last government by pumping billions of dollars into the currency market.
@Gaurav,
Pakistan’s deficit is decreasing. India’s is growing. Neither has seen much of a change in exports, and Bangladesh and Vietnam reaper the benefits of the US China trade dispute while India has already lost out on that.
@Daddy Cool,
Are you suggesting that maintaining a large deficit is somehow a good economic indicator? There is still room for much improvement, but this is an excellent first step.
With the total stoppage of imports we may soon achieve the impossible task of our country being the only nation in the world which is engaged in exports alone. Of course we can well ignore any other aspects related to the matter completely.
Finally, we see light at the end of the tunnel. No wonder why the opposition is trying desperately to stop PTI from completing its 5 years of good governance because once it does, they will be out of business for ever.
Pakistani economists have stated the upcoming winters as one of the prime reasons behind this shrinking.
Good news for government bad news importer. I believe it's the right thing to do. We cannot afford it we shouldn't be buying it.
@Daddy Cool,
99mn USD increase is there. That accounts for 1.38% only. But still its not a negative figure. Important thing is what if defer payments to KSA, UAE etc are counted in this?
@Gaurav, To a positive balance and a solid economic base to build from. Doesnt take much to figure that out looks like you are worried.
Wow the ignorance in the comments is amazing. The government is shrinking imports to relief pressure on balance of payments. It’s working as planned.
When the economy has been wrecked in 14months and there is no machinery and manufacturing import, the CAD deficit shrinks for now. A year from now this would be underlined as a testament to the terrible economic faux pas by IK's govt
@Rajveer, of course, defered payment for like imports from UAE and SA of upto 3 billion USD reflects on the lower imports bill. Once the repayment starts and exports still remain stagnant, the CA defit will shoot up. But by then there will be another government to blame the previous government.
As usual the dumb blind followers start their praise for IK without any analysis of the situation. Worst still, doubt they ever listen to a well informed civilized debate on TV.
@Daddy Cool, most of the reduction in import is for non essential good which is a very good sign. The international buyers always take advantage of the better exchange rate for better deals for themselves. The benefit is generally transferred to the buyer. So if there is a significant devaluation of currency and still there is some growth in export, that is definitely a positive sign. The volume of export must have increased considerably. You cannot judge economic policy of any government in one years. It takes at least 3-4 to definitely say something meaningful.
The economy is shrinking.
Some good news.
Why are exports low?
When you kill imports. Why not.
Is the reduction in imports the result of reluctant industry to buy parts and products from outside Pakistan because of higher b taxes that this government levied. If that is the case then how would this single indicator lead to betterment in economy. I think reduced imports will continue to affect our productivity and therefore jobs. The almost stagnant exports is the evidence for this.
On one way, deficit reduction but on the other hand it implies slowing down of economic activity.....government needs to invest on infrastructure development which will generate employment and increase money circulation....Chinese model.....
Good!
Exports increased ?
If after such devaluation of national currency exports are not increasing and only imports have fallen then there are serious structural problems. It is the economy stupid that makes a country strong, not bombs or chest thumping.
Tell Ppp pml n and maulana fazal.
The need is to improve exports it wil only create a short span of success. we need a sustainable growth in exports.
Its due to deferred payments. Reality will vote when bill comes
The question is:
Did the exports increase or the imports decrease while the exports remained the same.
Gives two different pictures of economic health!!!!
@ Daddy cool! So what , you think it’s an economy of Us?. Dude it will take time..but you can’t convince the hater.
Imran inherited a bankrupt country left behind by crook Zaradri and Sharifs who ruled for 40 years. There was not a billion dollar in reserve to pay debt of 50 billion dollars.
Imran begged 12 billions to sustain the economy. Give Imran 3-4 years for his policies to be effective.
/Honesty will pay. 95 % crook Pakistanis need to collect taxes and pay taxes. Money does not grow on trees, Pakistanis want every thing done and free from the Government and pay NO taxes. Shame
At this rate CAD will decline by a whopping 500% by the end of 2020.
Well at least one massive target is met. Now even a 5% increase in exports can result in much better outlook than before. Slowly the ship is turning for the better.
@Rajveer, India is going down.
Miracle of Differed oil payment.
Progress is progress...
Gordon D. Walker
Canada
If import has come down means less oil import , it also means less people are driving
Reduction in imports is not necessarily a good omen as reduction may Also so mean that plants and machinery needed for infrastructure growth have not been imported.
@Daddy Cool, This is good, it just means petrol is used more economically and objectives achieved but avoiding wastage.
@Daddy Cool, well explained
Oil payment differed-good
@Daddy Cool, No you got Voodoo economics lesson, and you only live in dark no matter Pakistan does! By keeping in check the imports reduced by 64% down over past year is an excellent achievement. This measure government can control but for your knowledge exports are mainly public sector interest where government facilitates exports of the country to overseas markets.
good start but obviously need to ....... do more !!!
This is an indicator of a slowed economy. A sign of failed economic policies, not something to cheer about. It has come about due to a decrease in imports, not by an increase in exports. The PM has been misguided by his incompetent advisers.
Hats off to PM Imran Khan for his sedulous work for the people of Pakistan. May Almighty bless & succeed him.
Hats off to PM Imran Khan for his sedulous efforts for us. May Almighty bless and succeed him.
Pakistanis are so uninformed, that fooling the public is trivial. All that's happened is that the economy has slowed, so imports dropped. That's absolutely not a reason to celebrate! Pakistan is in an even worse situation, as the fundamentals in the economy itself are tracking downwards.