KARACHI: The current account deficit (CAD) swelled to $17.4 billion in FY22, which could be the most painful shock for an economy already in trouble with serious imbalances.

The State Bank of Pakistan (SBP) on Wednesday reported that the country recorded a CAD of $17.406bn in FY22 compared to a gap of just $2.82bn in FY21.

The massive CAD speaks a lot about the severe problem of the balance of payments. The PML-N-led coalition government posted a CAD of $4.323bn in the April-June period of 2021-22, which was the second highest quarterly deficit of the fiscal year that ended on June 30.

The deficit of over $17.4bn is more inflicting in the wake of no inflows as loans while the commercial markets are not ready to accept Pakistan’s bonds due to higher risks.

PML-N-led coalition govt posts second-highest quarterly deficit of $4.3bn

The current account deficit has exceeded the SBP’s projection for the deficit in FY22. The CAD increased to 4.6 per cent of GDP in FY22, up from 0.8pc in FY21.

In November 2021, the SBP issued its Annual Report and said the current account deficit is projected in the range of 2pc to 3pc of GDP during FY22.

Reports appearing in local and foreign media suggest that Pakistan can’t unlock the dollar inflows until the IMF executive board approves its staff-level agreement reached on July 15.

The finance minister has been hinting at an early deal with the IMF, but with the passage of time, the trust deficit is rising; the currency market reflects the trust deficit by depreciating the local currency on a day-to-day basis.

The CAD in June FY22 was much higher than in May as it rose to $2.275bn in June compared to $1.430bn in May. The CAD in June FY21 was $1.637bn.

“A surge in oil imports saw CAD rise to $2.3bn in June despite higher exports and remittances,” the SBP tweeted on Wednesday. So far in July, oil imports are much lower and the deficit is expected to resume its moderating trajectory,” it added.

The central bank said 3.3 million tonnes of oil were imported in June, a 33pc increase over May.

“Together with higher global prices, this more than doubled the oil import bill from $1.4bn to $2.9bn. By contrast, non-oil imports ticked down,” said the SBP.

The higher oil import bill was held for a higher current account deficit in June, but the entire fiscal year noted a very high current account deficit as the second quarter noted the biggest deficit of $5.565bn.

Further details showed that exports of goods in FY22 were $32.45bn while service exports were $6.97bn.

The imports of goods were $72.05bn, while the imports of services were $12.14bn. The balance of trade in goods and services showed a net deficit of $44.77bn in FY22 compared to $31.15bn a year ago.

The ongoing fiscal year will face a tough time with poor inflows and higher outflows while the economic growth rate will be half of the growth achieved in the previous fiscal year.

Published in Dawn, July 28th, 2022