Current account deficit accelerates to $632m in May

Published June 26, 2021
The deficit in May this year was much bigger compared to April when it was $188m — only lower than the deficit of $652m in December. — Reuters/File
The deficit in May this year was much bigger compared to April when it was $188m — only lower than the deficit of $652m in December. — Reuters/File

KARACHI: The country witnessed the sixth consecutive current account deficit (CAD) of $632 million in May, leaving a meagre $153m surplus in the first 11 months of the outgoing fiscal year (11MFY21), the State Bank of Pakistan (SBP) data showed on Friday.

The continuous deficits — which began in December 2020 — consumed the benefit of surplus generated in the first half of FY21.

The deficit in May this year was much bigger compared to April when it was $188m — only lower than the deficit of $652m in December.

In May 2020 the country has posted a net surplus of $329m, the SBP data showed.

However, since December the deficit size started to decline and fell to $229m in January, $50m in February, $47m in March and $188m in April. The large deficit in May has minimised the chance of ending FY21with a current account surplus, given that the meagre amount is left to face the possibility of another large deficit in June.

11-month surplus shrinks to $153 million

During July-May FY21, current account was in surplus with $153m, leaving very little chance for the year to end with surplus. Earlier, the SBP governor said the CAD in FY21 was still expected to remain below 1pc of the GDP given continued strong prospects for remittances.

At the end of nine months of the current fiscal year (9MFY21), the State Bank said account surplus was noted after 17 years which would help the economy to come out from the huge pressure of deficits prevailing for long periods.

However, the growing import bill is creating a large trade deficit and has placed pressure on the current account. During 11MFY21, trade deficit rose by 30pc to $27.46 billion compared to same period in FY20. The increased trade deficit was due to 22pc increase in imports in this period which led total imports to $50bn — almost 20pc higher than the imports in previous fiscal year.

Financial analysts said there was no chance of CAD reaching at 1pc of GDP. The recovery of economy has pushed import bill up leading to widening of trade deficit, they added.

The country received extra support from record remittances which grew by 29pc in FY21. Exports also showed growth which helped reduce the impact of dollar outflow from the country.

The government paid $10.633bn as external debt servicing during 9MFY21 while it would be around $14bn at the end of the current fiscal year.

Some bankers also pointed that the outflow of foreign exchange from the country would be higher in June as the year is coming towards conclusion. The government as well as companies pay back their dues while loans are also paid at the end of the fiscal year.

At the end of March FY21, the country raised $2.5bn in three dollar bonds of five, 10 and 30 years from the international capital market. This was the first bond issuance by the PTI government.

It received 50pc oversubscription to $5.3bn reflecting the growing confidence of the investors on external affairs of the country. Reports appearing in media suggest that the government was in process to launch another euro bonds to raise dollars for strengthening the external account.

Published in Dawn, June 26th, 2021

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