KARACHI: The country’s current account deficit plunged by 72 per cent to $2.654 billion during the first seven months of 2019-20, from $9.479bn in same period last year – a reduction of $6.825bn, reported the State Bank of Bank on Wednesday.

However, the deficit in January came in at $555 million, surging by 77.32pc over $313m in December 2019 while dipping by 35.84pc over $865m in same month last year.

As percentage of Gross Domestic Product, the current account deficit lowered to 1.6pc in 7MFY20, as against 5.5pc in corresponding months last fiscal year.

Much of this huge cut in the current account gap was driven by a large decline in import bill even as exports only slightly improved.

Despite a marked achievement of reduced current account deficit, the sharp fall in import bill has created some debate among economists and analysts with many holding the low imports responsible for slower economic growth.

The latest data show that the goods import fell to $26.086bn during July-January 2019-20, compared to $32.489bn in same period last year. Meanwhile, import of services showed a modest decline of 4.47pc to $5.211bn, from $5.455bn.

During the seven-month period under review, exports of goods depicted an increase of $306 million only (or 2.16pc) to $14.442bn, as against $14.136bn in 7MFY19. Similarly, export of services rose slightly to $3.237bn, from $3.077bn.

The government after taking over was faced with the mammoth current account deficit of $20bn in FY18, which it has been able to tame significantly since then while building foreign currency reserves and stabilising the exchange rate. However, increasing debt servicing and low volume of foreign direct investment coupled with disappointing export performance could not help the economy stabilise and grow properly.

The government has been providing hundreds of billions to the export sector for boosting foreign sales but the return hasn’t lived up to the level of incentives and expectations.

Over $3.1 billion inflows of foreign investment in domestic debt papers (treasury bills) has created cushion for the government, which still depends largely on borrowing from the international donors and commercial banks.

Published in Dawn, February 20th, 2020