KARACHI: The current account deficit (CAD) narrowed year-on-year by 91 per cent in October but it widened on a month-on-month basis.

The latest data issued by the State Bank of Pakistan (SBP) on Monday shows the deficit remained within the estimate of the bank. Last week, the SBP governor said that CAD would remain well below $100m in October and expected that it would be well-contained in 2023-24.

The data shows that the CAD was $74 million in October compared to $849m in the same month last year, a contraction of 91.2pc. This is in line with the SBP’s policy despite the ease in the import restrictions.

The IMF again emphasised in the recent review before reaching a Staff-Level Agreement with Pakistan for the release of the second tranche under the nine-month $3bn Stand-By Arrangement to open up imports which would certainly increase the trade deficit and ultimately the CAD.

The CAD was drastically slashed by 87pc in FY23 by imposing a strict ban on most of the imports.

However, a banker said that despite easing of import restrictions banks are not free to open letters of credit (LCs) for imports. The shortage of dollars in the interbank market is still there while most of the banks show their inability to provide dollars for large LCs.

The data showed that the CAD in October widened by 61pc against $46m in September. It also indicated a future trend as higher imports are expected this year while exports have been declining.

Moreover, the remittances increased in October to $2.5bn but the four-month inflows declined by 13.3 per cent. Low inflows may cost the country with higher CAD at the end of FY24.

During the first four months (July-October), the CAD shrank by $2bn which is highly encouraging for the economic managers of the country. The State Bank data shows that during July-Oct FY24 the CAD was $1.06bn against $3.1bn in the same period last year. This contraction may help the government to meet the foreign debt servicing obligations as the country is required to pay back $25bn during FY24.

According to the SBP data, the exports of goods in July-October increased by $170m to $9.777bn while the imports fell by $4.2bn to $21bn. Services export and import increased by $78m and $534m, respectively.

Published in Dawn, November 21st, 2023