Current account posts $773m deficit in July

KARACHI: Current account posted a $773-million deficit during the first month of the current fiscal year (FY22) due to a higher import bill.

The country's goods import payments increased significantly by 51 percent to $5.396 billion in July 2021 compared to $3.557 billion July 2020. The higher import bill turned the current account into deficit. The country's imports are increasing due to pick-up in domestic activity and higher global commodity prices and vaccine imports to deal with Covid-19 pandemic.

The State Bank of Pakistan (SBP) on Friday reported that the country recorded a current account deficit of $773 million in July 2021 compared to a $583 million surplus in July 2020. However, on a month-on-month basis the current account deficit declined 52 percent in July 2021 as against June 2021, in which the current account deficit was $1.619 billion.

According to SBP, the deficit, in the first month of this fiscal year, is in line with SBP's expectations of a current account deficit of 2-3 pct of GDP for FY22 as economic activity continues to progress.

C/A surplus turns to deficit on higher import bill

"Despite the recent increase in the current account deficit, SBP's foreign reserves position continued to strengthen on a monthly basis. This is in contrast to past trends and is supported by the country's market-based exchange rate system," the SBP added.

Analysts said that an improved outlook for exports and appropriate macroeconomic policy settings would help to contain the current account deficit during this fiscal year (FY22). SBP also expects the country's foreign exchange reserves to continue to improve due to adequate availability of external financing.

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The detailed analysis showed that the cumulative deficit of goods, service and income surged to $3.644 billion in the first month of FY22 compared to $ 2.684 billion in the same period of FY21. With $ 2.257 billion exports and $ 5.396 billion exports, the country's goods deficit reached $3.139 billion in July FY21.

During the period under review, services trade deficit stood at $232 million, with $ 483 million exports and $ 715 million imports in the first month of the fiscal year. Similarly, with $ 329 million payments and $ 56 million receipts, the primary income sector deficit declined to $ 273 million in July 2021.

External account performed well during the last fiscal year supported by a market-based flexible exchange rate system, record remittances inflows and growth in exports. Overall current account posted a deficit of $1.8 billion during July-June FY21 as against $4.449 billion deficit in FY20, depicting a decline of 58 percent or $2.59 billion.

Copyright Business Recorder, 2021