KARACHI: The country for the second month in a row posted a current account deficit (CAD) of $229 million in January mainly due to surging imports, which is not a good omen for the government as it is striving to bring the CAD to zero.

On a month-on-month basis, the CAD shrank by 64.87pc from $652m in December 2020.

However, the current account for the first seven months of 2020-21 was still in positive with $921m though the size of the surplus had been declining each month.

The CAD in 7MFY20 was $2.5bn while for the whole FY20 it was recorded at $2.97bn.

The government has succeeded in bringing down the $20 billion CAD in 2018 to surplus this year so far, but the trend indicates that by the end of the FY21 the C/A could be in deficit.

January CAD shrinks by 65pc over December 2020

The data showed that the imports have increased while the exports could not improve enough to bridge the trade gap. The data showed that the exports slightly dipped to $13.897bn during 7MFY21 against $14.446bn in the same period of last year.

However, the imports further increased to $27.639bn during 7MFY21 compared to $26.044bn. The balance on trade in goods showed the deficit as $13.742bn during the period under review compared to the deficit of $11.598bn in the same period of last year.

According to the SBP, the balance on trade in goods and services recorded a deficit of $14.875bn compared to the deficit of $13.491bn of last fiscal year.

The government has been providing several incentives to boost exports but the data shows the growth is slow and still less than the previous fiscal year. The textile earns 55 to 60 per cent of exports proceeds for the country but the poor performance of the cotton production badly hit the industry.

The textile millers said the imports of cotton could cost up to $3bn by end of the current fiscal year which means the trade gap would be further widened and ultimately the current account could post deficit. So far the textile millers have imported cotton worth more than a $1bn.

Financial experts said the January deficit was significantly lower than the deficit in December ($652m). If the deficit remains within the range of $200m to $250m per month, the current account deficit could be zero or negligible by the end of the fiscal FY21.

They said if the country comes out from the grey list of FATF both the foreign investment and exports will increase and likely to help the country maintain a current account surplus for the current fiscal year.

Published in Dawn, February 23rd, 2021