KARACHI: The country’s current account deficit (CAD) narrowed by massive 54.66 per cent to $1.3 billion, or 2.8pc of GDP, during the July-August period of FY20 as the overall economic slowdown sapped imports.

Data published by the State Bank of Pakistan (SBP) on Thursday showed that CAD shrank by 14.22pc year-on-year to $641 million in August against $720m in the same month last year.

The raising of duties on various imports coupled with the overall economic slowdown have helped the government to bring down the CAD substantially during the last 14 months. In FY19 the CAD fell by around 30pc to $12.756bn from decade-high of $18.13bn in FY18.

However, much to the government’s dismay, the deficit has not reduced due to an improvement in exports or increase in foreign direct investment but has mainly come on the back of massive slump in imports.

Imports reduced by 21.7pc to $7.65bn during the July-August period while exports grew 8pc reaching $3.68bn in the same period over last year, according to the latest data published by the Pakistan Bureau of Statistics.

On the other hand, improvement in remittances from overseas Pakistanis — reaching record-high of $21.84bn during the last fiscal year — also helped government counter the lower-than-expected growth in export receipts.

Whereas, the financial account of foreign direct investment has failed to impress throughout the last fiscal year and during July-August in the current fiscal year as well despite improvements in the security conditions and energy infrastructure.

But in an overall economic slowdown, the space for the government to decrease imports – primary driver ongoing improvement in the current account deficit – may be running out since around 33pc of the total imports are used by the export-oriented sectors.

Some experts and trade believe that the continuous fall in imports will impede economic output and consequently hurt exports and the government should improve ease of doing business to increase investment in to the country.

Reserves rise: Foreign exchange reserves held by the State Bank of Pakistan increased by $138m to $8.6bn, latest data showed on Thursday.

Whereas, the reserves held by the commercial banks also increased by 0.11pc to $7.29bn bringing the total reserves held by the country to $15.9bn.

Bond yields fall: The central bank in its latest Pakistan Investment Bond (PIB) auction raised Rs274bn in the three-, five- and 10-year instruments.

The auction saw cut-off yields decline in all tenures after the SBP held its policy rate steady at 13.25pc in the latest monetary policy statement for next two months on Monday.

The cut-off yields for the three-year PIBs decreased by 130 basis points to 12.95pc, 105bps to 12.5pc for five-year and 90bps to 12.24pc for 10-year instruments. The central bank, however, rejected the bids for 20-year PIBs.

On the other hand, the central bank raised Rs183.17 form the fixed-rate PIBs against bids worth Rs787.81bn.

Published in Dawn, September 20th, 2019