KARACHI: Current account deficit declined by 68 per cent to $3.8 billion during the first eight months of the current fiscal year (FY23) from $12bn during the same period last year.
February showed a healthy sign as the CAD fell to just $74 million against $519m last year, the lowest monthly deficit recorded since February 2021. The deficit declined by 86 per cent on a year-on-year (YoY) basis.
The decline in the CAD was due to a fall in imports while no higher exports or inflows were noted. Though the balance of payment reflected a healthy sign for improvement in the external front of the country’s economy, the government is unable to meet even this decreasing CAD due to extremely poor foreign exchange reserves.
“On a YoY basis, the primary reason behind the decline in deficit was a 24pc fall in total imports. However, total exports and remittances also decreased by 19pc and 9pc YoY, respectively,” said Tahir Abbas, head of research at Arif Habib Limited.
The February deficit was even much lower than January’s $230m. The decline made a trend for the CAD during FY23 and may end up with much lower deficit compared to last year. The CAD stood at 17.4bn during the last fiscal year (FY22).
Experts believe the CAD could be around $6bn in FY23. This figure is a real problem for the country as the International Monetary Fund (IMF) has been asking the government to arrange the amount needed to meet the CAD by the end of FY23.
Pakistan got much-needed support from China which provided two tranches of $700m and $500m to improve the country’s foreign exchange reserves that stood at $4.3bn by March 10 this year.
Experts said that due to political uncertainties the friendly counties are reluctant to extend loans as they fear Pakistan may default and their money could get stuck up.
Former finance minister Miftah Ismail recently revealed that Pakistan had met all IMF conditions. To meet the Fund’s conditions, the government has increased the interest rate to 20 per cent. This high rate crippled the country’s trade and industry, also resulting in higher inflation of 30pc.
In order to bring the fiscal deficit under control, the government has slashed the development budget, thus slowing down the economic growth and creating joblessness in the country.
Since the government is unable to increase exports, the balance of payments remained under threat as imports stood double than exports during the July-Feb period.
Imports of goods during the first eight months of FY23 stood at $37.88bn, while exports during the same period were $18.639bn. The import of services during this period was $5.118lbn against the export of services at $4.778bn. Despite a massive decline in the CAD, the government is unable to meet the deficit due to large trade deficit.
Imports of goods during the first eight months of FY23 fell by almost $10bn and exports by around $2bn. The poor exports with much higher imports did not allow the country to find a balance on its external front. The balance of trade in goods and services during the first eight months of FY23 was in deficit with $19bn compared to $29.8bn last year.
Published in Dawn, March 21st, 2023