Current account deficit jumps to $572m in April as exports fall

Updated May 22, 2020

Email

The county is likely to face a total current account deficit of around $5bn by the end of this fiscal year. — Reuters/File
The county is likely to face a total current account deficit of around $5bn by the end of this fiscal year. — Reuters/File

KARACHI: The current account deficit (CAD) during the month of April rose to $572 million compared to just $9m in March, data released by the State Bank of Pakistan (SBP) showed on Thursday.

However, the cumulative deficit during the first 10 months of this fiscal year fell to $3.343 billion against $11.449bn in the same period last fiscal year.

The month-on-month increase in the deficit came on the back of sharp decline in exports, which fell by 54 per cent to $957m compared to $2.08bn in the same period last fiscal year.

The county is likely to face a total current account deficit of around $5bn by the end of this fiscal year.

However, the emergence of Covid-19 pandemic has put the country’s export growth at risk. The sharp reduction in figures for April are likely to worsen in May as most of the export orders bound for north American and European countries have either been cancelled or are sitting idle at the ports.

The SBP data showed exports in the first 10 months slightly declined to $19.65bn from $20.135bn in the same period last year. However, imports fell significantly to $36.09bn against $43.447bn in the same period last fiscal year.

The sharp reduction in imports helped narrow the trade balance to $19.058bn during the first 10 months of this fiscal year compared to $27.242bn last year.

The government has succeeded in bringing down the current account deficit in the current fiscal year, as it had risen to an unsustainably high level of $20bn eroding its ability to continue paying foreign obligations.

The quarter-wise data showed Jan-March posted a higher deficit compared to the preceding quarter of Oct-Dec FY20. The deficit during Jan-March was $739m against $540m in Oct-Dec.

The current account deficit has been on a declining trend in the current fiscal year, however the pandemic has changed the outlook for further improvements as the country’s exports have suffered a massive blow amid sharp demand contraction for goods across the world.

But the G-20 debt relief initiative is expected to provide the much-needed cushion to the government as it will allow the government to defer debt payments by $2.4bn for a period of 12 months and save foreign exchange.

If approved, the moratorium will help government maintain its forex reserves. Pakistan has been battling to keep its reserves in double digits.

However, in order to maintain the falling trend in current account deficit, the government must work on improving exports as they play a key role in keeping the deficit at a sustainable level. The lifting of lockdown may improve exports in the next coming months. ReplyForward

Published in Dawn, May 22nd, 2020