Irfan Khan
Irfan Khan

KARACHI: The current account posted a surplus for the second consecutive month, shrinking the 10-month deficit by 76 per cent year-on-year, the central bank said on Tuesday, following stringent import restrictions by the government to manage an economy in turmoil.

The surplus of $18 million in April came after the country’s current account turned to $654m in March — a big monthly figure and the first surplus in over two years. The State Bank has now updated the March surplus to $750m.

This has helped contract the ongoing fiscal year’s current account deficit (CAD) by a massive 76 per cent to just $3.26bn in July-April compared to $13.65bn in the same period last year.

The financial sector hopes that the country will end up this fiscal year with a minimum current account deficit of $3bn against $17.5bn a year ago.

April’s $18m figure helps narrow 10-month deficit by 76pc

However, the country has yet to come out of the crisis on the external account of the economy and it has failed to convince the International Monetary Fund to release a much-needed tranche of $1.1bn.

The prime minister and the finance minister have publicly announced that the country had fulfilled all the preconditions attached to this loan instalment, but the IMF has remained unmoved.

To get this IMF tranche, the government succeeded in getting a guarantee of $2bn from Saudi Arabia and $1bn from the UAE, while China assured to roll over $2.4bn.

Financial experts said Pakistan still needed $3bn along with these assurances to pay back as debt servicing in FY23.

Economists and analysts have been writing that Pakistan could lose $2.2bn from the IMF under the Extended Fund Facility by the end of June 30.

They say if Pakistan fails to convince the IMF to release both instalments equalling $2.2bn, the next financial year would be more difficult than the current one.

Sources in the financial sector said the IMF was watching the developments regarding the new budget to be presented by the government on June 9.

Pakistan needs to enter another IMF deal for FY24 to avoid default, as another huge amount of up to $35bn would be required for debt servicing.

If the current account balance remains positive, Pakistan could continue to avoid default, but the local industry may suffer on a large scale.

The grave impact of slashing the imports has already resulted in an extremely low economic growth rate of just 0.5pc in FY23. The latest data shows that the large-scale manufacturing sector posted 25pc decline in March.

Almost all major industries have been working below capacity, while high inflation has stifled domestic investments.

Analysts have identified two major reasons for low economic growth, including a record interest rate of 21pc and a massive decline in imports. They also consider the dollar’s appreciation against the rupee alarmingly high.

Published in Dawn, May 17th, 2023

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