A graph depicting Pakistan’s current account for the past 11 months. — Rehan Ahmed
A graph depicting Pakistan’s current account for the past 11 months. — Rehan Ahmed

KARACHI: Pakistan’s current account turned negative in May after surpluses in the three preceding months of the outgoing fiscal year.

On Friday, the State Bank of Pakistan (SBP) reported that the current account posted a deficit of $270 million in May against a surplus of $491m in April. The current account in May FY23 was in surplus with $155m.

The country’s overall current account deficit (CAD) sharply narrowed by 88 per cent to $464m in 11MFY24, compared to $3.765 billion in the same period last fiscal year.

A vital change was noted when the current account posted surpluses of $128m in February, $434m in March and $491m in April. However, the trend changed in May.

Experts see further widening of CAD in last month of FY24

Experts watching the trend said the CAD may further widen in June, the last month of the current fiscal year.

They said debt servicing and easing imports in the second half of the current fiscal year could be the reasons for this trend reversal. The SBP governor recently said that the country paid $2bn in debt repayment, and another $8bn is due in the next two months.

According to the SBP data, merchandise exports increased to $28.7bn in July-May compared to $25.8bn in 11MFY23. However, the imports of goods remained almost the same, at $48.4bn, compared to $49.5bn last year.

The services exports incr­­eased to $7.1bn in 11MFY24 compared to $7bn in the same period last year. However, the imports of services increased by $1.33bn. The trade deficit in services posted a gap of $2.1bn compared to a deficit of $887m in the same period last year.

The country’s balance of payments gap has significantly reduced to $464m in 11MFY24 from $3.28bn in FY23 and a staggering $17.48bn in FY22.

This massive decline resulted from managed imports and tight control on outflows of dollars.

The SBP was so strict that it did not allow outflows of profits and dividends on foreign investments in FY23.

However, it has been eased during the current fiscal year, but the informed bankers said that not all profits and dividends were allowed to go out of the country even in FY24. This outflow was eased only after the IMF’s intervention in easing the imports.

The fallout from lower imports resulted in the economy’s contraction in FY23, while the outgoing FY24 would hardly post a growth of 2.3pc.

“Managing the current account is a success, but the government needs to bring balance for the entire economy, which is not visible,” said a banker who had information about the stuck-up profits and dividends on foreign investments in Pakistan.

Published in Dawn, June 22nd, 2024

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