Current account deficit shrinks massive 64pc

Updated October 19, 2019

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The reduction in CAD comes amid a sharp slump in overall imports whereas the exports have failed to perform despite rupee devaluation.
The reduction in CAD comes amid a sharp slump in overall imports whereas the exports have failed to perform despite rupee devaluation.

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