KARACHI: The country posted a surplus of $255 million in May compared to a $1,506m deficit in the same month last year thus grossly reducing the current account deficit (CAD) in the outgoing fiscal year.

A late-night despatch from the State Bank of Pakistan (SBP) on Monday showed the CAD narrowed by 80.58 per cent to just $2.943bn during July-May FY23 from $15.16bn in the same period of last fiscal year.

Despite a sharp reduction in CAD, the fears of sovereign default are still looming as the government fails to boost its dwindling foreign exchange reserves amid sharp contraction in exports and remittances.

This massive narrowing down of CAD heavily cost the economy as the imports were chopped down to reduce the trade deficit but this caused a slowdown in industrial production due to shortages of raw materials.

Amid SBP restrictions imports of goods dipped to $48.9bn during the first 11 months of FY23 compared to $64.339bn in the corresponding period last year. But this drastic reduction badly hit the economic growth which fell from 6.1pc in FY22 to 0.29pc this year.

Current account deficit narrows over 80pc to $2.9bn in 11MFY23

The State Bank’s data issued on Monday also showed that the surplus was higher than April’s $78m. The trend remained positive for most of the 2nd half of the current fiscal year.

However, the poor inflows of dollars made the situation even worse despite a low CAD in 11 months. The country has reserves of about $4bn, that too was borrowed.

At the same time, the deadline for the IMF loan is about to expire on June 30 but the Fund did not make it clear whether the remaining amount of the $7bn bailout package would be released or not this uncertainty is creating restlessness in the financial circles.

SBP former Governor Reza Baqir expressed serious concerns over the country’s external account. He was of the view that without IMF, Pakistan could go into default. Former finance minister Miftah Ismail has also been talking about the default provided Pakistan reaches a deal with the Fund.

Experts and analysts said the IMF was showing doubts about the data provided in the budget for FY24 and this was the main reason that at first Pakistan avoided sharing data and said the IMF is not part of the budget.

However, the government later provided the budget data but things are still not clear about the new objections of the IMF and new preconditions for the release of the loan.

Published in Dawn, June 20th, 2023