CAD shrinks 45pc in July

Published August 25, 2022

KARACHI: Pakistan’s current account deficit (CAD) shrank 45 per cent month-on-month to $1.2 billion in July, the State Bank of Pakistan (SBP) said on Wednesday.

The country’s trade deficit dropped 18.3pc to $2.64bn during the same month from $3.23bn a year ago.

Pakistan posted a massive current account deficit of $17.3bn in the previous fiscal year, or a monthly average of $1.44bn.

The sharp contraction in CAD could be a temporary relief for the government as it may ease pressure on the external front but will depress the economic growth as lower imports of raw materials will slow down industrial production which may result in higher unemployment in the current fiscal year.

The import declined mainly due to a ban on 800 luxury and non-essential goods by the PML-N-led coalition government on May 19, but the trade and industry did not welcome the move since it also hurt the economic activities.

The data released by the SBP showed that the imports of goods stood at $5.39bn in July compared to $7.03bn in June. It also showed that the exports declined by 26pc to $2.295bn in July against $3.134bn in June, reflecting the poor performance on the external front of the economy.

In the last month of FY22, the imports edged up to $7.74bn from $6.28bn in the same month preceding year. The overall imports surged by 43.4pc to $80.5bn in 2021-22, up from $56.12bn a year ago; this was the main reason for the huge current account deficit.

It was believed that the declining imports would reduce pressure on the exchange rate but the dollar once again started going up against the local currency.

“The current account deficit shrank to $1.2bn in July from $2.2bn in June, largely reflecting a sharp decline in energy imports and a continued moderation in other imports,” the SBP tweeted.

“The narrower deficit is the result of wide-ranging measures taken in recent months to moderate growth and contain imports, including tight monetary policy, fiscal consolidation and some temporary administrative measures,” it said.

The CAD is the biggest problem for the government which made the exchange rate vulnerable and weakened the external front of the economy. Despite, all efforts so far, not a single dollar landed in SBP accounts from creditors like IMF to support the falling foreign exchange reserves.

Rupees falls to 218.38 against dollar

Meanwhile, the US dollar maintained its upward journey and appreciated by 72 paise against the rupee in the interbank market on Wednesday.

The State Bank of Pakistan reported closing price at Rs218.38 compared to Rs217.66 a day earlier.

Currency dealers have been keenly waiting for the inflows of $2bn from Qatar and a $1.18bn tranche from the IMF as its executive board meets on Aug 29 to approve the resumption of loans to Pakistan.

Published in Dawn, August 25th, 2022

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