KARACHI: Pakistan’s current account posted a significant surplus of $397 million in December 2023, bringing the entire second quarter of the current fiscal year FY24 into positive territory with a surplus of $198m.

The December surplus was primarily attributed to higher exports, increased remittances, and a significant decline in imports, helping the country gain control over the most pressing economic issue that had brought it to the brink of default at the beginning of FY24.

According to the latest data from the State Bank of Pakistan (SBP), issued on Wednesday, the December surplus contrasted with a net deficit of $365m in December 2022. Further details showed that the current account deficit (CAD) during the first half of the current fiscal year was $831m, compared to $3.63bn in the same period of the previous fiscal year.

This marks a significant achievement for the government, as the CAD narrowed by 77pc, or $2.8 billion. Financial circles believe that reducing the CAD could lead to an overall surplus by the end of the current fiscal year. However, the SBP had predicted a deficit of 1.5 per cent of GDP.

CAD narrows by $2.8bn in first half of FY24

At the beginning of the current financial year, the country was close to default, but the IMF’s $3bn Stand-By Arrangement for the next nine months bailed out the country from the disastrous situation. After the release of first IMF tranche, Saudi Arabia and the UAE came forward to help the country, and the foreign exchange reserves of the SBP, which had fallen below $4bn, increased to over $8bn. The surplus in December was also a shift from deficit to surplus. The CAD in November was $15m.

Analysts and researchers were of the view that the current account surplus was widely appreciable particularly after reaching close to default. However, the fundamentals are not strong since the surplus resulted mainly from a drastic cut in the imports and overall reduction in trade deficit. Lower imports hinder industry growth.

The IMF projects GDP growth for FY24 in the range of two to 2.5pc. A low GDP means higher unemployment, potentially exacerbating the already 40pc poverty rate.

According to SBP data, the balance on trade in goods and services during the first half of the current fiscal year had a deficit of $11.382bn, down from $15.636bn in the same period last year, marking a trade deficit decline of $4.244bn.

The current account had a deficit of $1.029bn for the first quarter (July-Sept FY24), but the second quarter (Oct-Dec) posted a surplus of $198 million. This change is vital for the economy and will aid the SBP in preserving foreign exchange reserves while maintaining exchange rate stability.

Published in Dawn, January 18th, 2024