KARACHI: The fiscal year 2020-21 ended with a large current account deficit (CAD) of $1.8 billion despite showing a surplus till the end of first 11 months (July-May) period of the year mainly driven by higher imports in the last month.

The State Bank of Pakistan (SBP) data issued on Monday showed that the CAD in June reached $1.644bn, the highest monthly deficit in FY21. The central bank also revised upwards the May deficit to $650 million against the earlier reported figure of $632m. The CAD in outgoing fiscal year was 59 per cent smaller when compared with $4.449bn deficit the country posted in FY20. The government was expecting FY21 to end up with a surplus but a large deficit in June proved it wrong.

Earlier, SBP Governor Reza Baqir said the CAD for FY21 would be below 1pc of GDP despite strong growth in remittances.

In a tweet on Monday, the State Bank said that in line with SBP projections, CAD in FY21 fell to only 0.6pc of GDP. “This is the lowest in 10 years,” said the SBP, adding that the country’s external position is at its strongest in many years with remittances at an all-time high. Foreign exchange reserves rose by $5.2bn in FY21 to over $17bn, a four-and-half year high, the SBP added.

External position is at its strongest, says SBP

“In June, the current account deficit rose to $1.6bn. Compared to May, exports of goods and remittances increased by $368 million and $197m, respectively. Meanwhile, imports of goods rose by $1.4bn,” the SBP said in a tweet.

Some of the rise in imports was seasonal, associated with bunching of year-end payments. The import bill was also larger than May due to higher oil imports and Covid vaccines, said the SBP. “Encouragingly, import of capital goods like machinery continued to rise, reflecting improvement in investment outlook,” it added.Since December, the current account had been posting deficits which continued till the end of FY21. December posted a deficit of $652m which was highest before June recorded CAD at $1.6bn in FY21.

Despite strong growth in remittances, the last seven months of FY21 remained in deficit while it also got some support from exports growth. The country received $29.4bn in remittances in FY21 — an increase of 27 per cent — but could not stop the year to close with a deficit.The large deficit in May had already minimised the chance to end up FY21with current account surplus. During July-May FY21, the current account was in surplus with only $153m.Since December, the size of the deficits started declining as it fell to $229m in January, 50m in February, 47m in March and 188m in April but May and June finally put the entire fiscal in deficit.

According to the SBP, the balance on trade in goods was in deficit with $28.155bn compared to the deficit of $21.109bn in FY20.

Imports rose to $53.785bn against the exports of $25.63bn leaving a trade gap of $28.2bn.

The SBP data showed that the balance on trade in goods and services in FY21 were in deficit with $30.03bn compared to $24.425bn in FY20.

Published in Dawn, July 20th, 2021