Alarm as current account deficit balloons to $1.5bn in August

Published September 18, 2021
The current account deficit has increased by a whopping 81 per cent in August to $1,476 million compared to July during this fiscal year. — AFP/File
The current account deficit has increased by a whopping 81 per cent in August to $1,476 million compared to July during this fiscal year. — AFP/File

KARACHI: The current account deficit (CAD) has increased by a whopping 81 per cent in August to $1,476 million compared to July during this fiscal year (FY22), mainly because of an ever-rising imports bill.

The latest data released by the State Bank of Pakistan (SBP) on Friday showed that FY22 has come under a strong grip of both trade and current account deficits in its beginning and this may lead to much higher-than-estimated deficits for the ongoing fiscal year.

The CAD in July was $814m which was widened by $1,476m in August showing a sharp increase of 81pc and a trend for growing deficit for the next 10 remaining months of the fiscal.

The total deficit during July-Aug reached $2.29 billion against a net surplus of 838m in the same period of FY21. August FY21 was also surplus with $255m against the deficit during the current fiscal year.

The SBP governor earlier said that CAD would be in the range of 2 to 3pc of Gross Domestic Product (GDP) in FY22. However, the sudden rise in the deficit reflecting the trend may lead to higher than the SBP estimate.

The worst impact of the CAD has emerged in the shape of instability of exchange rate which drastically weakened the local currency against the US dollar and a race started to book dollars for imports. The local currency has lost about 11pc since May 14.

The SBP data shows that trade deficit has sharply increased by 93.5pc during the first two months of FY22.

The mounting pressure of imports bill widening the trade deficit is one of the main reasons for a ballooning CAD. The primary reason for deficit during August was 86pc jump in imports compared to the same month in FY21. The import bill in August was $6.893bn compared to $3.710bn in the same month in FY21.

However, exports showed signs of improvement, posting a jump of 55pc in August at $2.881bn compared to the same month in FY21 at $1.860bn. Exports were also slightly higher in August than in July.

The import bill of 2MFY22 increased by 62.2pc to $13.033bn compared to the same period in FY22 when it was at $8.036bn.

Analysts said the import bill was not rising just because of higher demand for accelerated economic activities in the country but also due to the record prices of oil and gas in the international market which has added to imbalances.

Economic experts believe that exports have no potential to mitigate the serious impact of rising import bills.

The external front of the economy is in serious threat from rising current account deficit. FY21 witnessed a current account deficit of 0.6pc of GDP.

This deficit was about $20bn in FY18 which was brought down to $1.827bn in FY21. “If the current account deficit continues to move upward with the same speed, the entire struggle to bring down the deficit from $20bn to $1.8bn in FY21 would be vanished,” said S S Iqbal, a banker dealing with the external account .

Published in Dawn, September 18th, 2021

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