C/A turns negative by $773m in July

Published August 21, 2021
The data released by the State Bank of Pakistan (SBP) on Friday showed that the country’s current account had been in deficit since December 2020. — Reuters/File
The data released by the State Bank of Pakistan (SBP) on Friday showed that the country’s current account had been in deficit since December 2020. — Reuters/File

KARACHI: Amid rising imports, the country posted a current account deficit (CAD) of $773 million in the first month of 2021-22 against a surplus of $583m in July 2020.

The data released by the State Bank of Pakistan (SBP) on Friday showed that the country’s current account had been in deficit since December 2020. In January it was $229m, $50m in February, $47m in March and $188m in April, but in May it widened to $650m and surged to $1.6bn in June, resultantly the country ended the FY21 with CAD of $1.8bn.

Rapid increase in imports was the real reason for current account deficit in July, the SBP data showed. The imports bill jumped to $5.396bn in the first month compared to $3.557bn in the same month of FY21. Exports also increased, but not very significant, to $2.257bn in July compared to $1.885bn in July 2020.

However, the July deficit was much less than $1.6bn noted in June. The SBP said the higher June CAD was mainly due to some of the rise in seasonal imports, associated with bunching of year-end payments. Import bill was also larger than May due to higher oil imports and Covid vaccines.

The imbalance of trade in goods in July was $3.139bn against $1.672bn in July 2020.

“This is in line with the expectations of a current account deficit of 2-3pc of GDP as economy actively continued to progress,” said a tweet by the State Bank on Friday.

!][(https://twitter.com/StateBank_Pak/status/1428698823816359940)

Despite a widening CAD, the SBP’s foreign exchange reserves position continued to strengthen on a monthly basis. This is in contrast to the past trends and is supported by country’s market-based exchange rate system, it added.

SBP Governor Dr Reza Baqir has recently said the CAD would be in the range of 2-3pc of GDP in FY22. He said this would happen due to higher imports as the economy has started performing at larger scale.

The FY21 ended with a large CAD of $1.8bn, but it was much less when compared with $4.449bn in FY20.

In FY21 the country received $29.4bn remittances which was 27pc higher compared to the preceding year. The remittances in July remained intact as it was $2.7bn, slightly lower than the previous year. The State Bank said it would require about $20bn to make debt repayments in the current fiscal year.

Recently, the SBP also said that the CAD in FY21 was the lowest in 10 years, adding that the country’s external position is at its strongest in many years with remittances at an all-time high, central bank’s foreign exchange reserves rose by $5.2bn in FY21 to over $17bn, a four-and-half year high.

According to SBP the balance on trade in goods in FY21 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.

Published in Dawn, August 21st, 2021

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