The country's current account deficit narrowed substantially by 32 percent during the last fiscal year (FY19) supported by a significant decline in goods and services import bill. The State Bank of Pakistan (SBP) Wednesday reported that the country's current account deficit fell to $ 13.587 billion in July-June FY19 compared to $ 19.897 billion in same period of FY18, depicting a decline of $ 6.31 billion. In terms of GDP ratio, the current account deficit stood at -4.8 percent of GDP at the end of FY19 as against -6.3 percent in FY18.
Economists said that the country's external account continues to perform well on the back of lower import bill that mainly shrank due to decline in machinery and energy related imports.
However, they said that despite the contraction during last fiscal year, the current account deficit remained at a higher level from the perspective of external account's stability, which forced Pakistan to seek help from friendly countries and international financial institutions to tackle a balance of payment crisis. During last fiscal year, Pakistan obtained $ 2 billion from China, $ 3 billion from Saudi Arabia, $ 2 billion from UAE and some $ 500 million from Qatar to support balance of payment and build the depleting foreign exchange reserves. In addition, the IMF also approved a 39-month $ 6 billion bailout package for Pakistan. The first tranche of the IMF program amounting to $1 billion has arrived this month.
While foreign investment was insufficient to bridge the current account gap, the external financing from bilateral and commercial sources not only plugged the current account gap, but also provided some support to the country's foreign exchange reserves, they added.
According to the SBP, cumulative deficit of goods, services trade and income sector fell by 12 percent or $ 5.148 billion to $ 38.228 billion in June-July of last fiscal year compared to $ 43.376 billion in the corresponding period of previous year.
With $ 24.218 billion exports and $ 52.436 billion imports, goods trade deficit stood at $ 28.219 billion during FY19, down from $31.824 billion in FY18. In addition, during the period under review, services trade deficit declined by $ 1.8 billion to $4.265 billion.
However, primary income account remained under pressure due to interest payments. The primary income deficit increased to $ 5.7 billion in FY19 up from $ 5.4 billion in FY18. The SBP in its recent report has mentioned that the current account balance significantly improved during FY19 due to contractions in import payments for both goods and services and a decent growth in workers' remittances. The healthy home remittance growth and lower import bill also offset the higher primary income deficit and a decline in export receipts. The sizable decline in machinery imports following the conclusion of early phase of the CPEC, lower quantum energy imports and a temporary softening in global oil prices has contributed significantly to improvement in the current account deficit.
During last fiscal year, foreign investments were also unable to pick up, partially due to the looming uncertainty regarding the exchange rate adjustment and the finalization of the IMF program. Overall, foreign direct investment declined sharply by 50 percent to $ 1.737 billion in FY19.
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