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KARACHI: The country's current account deficit contracted by 78 percent during the last fiscal year (FY20), mainly driven by a modest growth in workers' remittances and significant reduction in imports.

In term of dollar and percentage of GDP the Current Account deficit also reached lowest level of last five years.

According to the State Bank of Pakistan (SBP), Pakistan's current account deficit was less than $3 billion during July-June of FY20. The country's current account posted a $2.9 billion deficit during FY20 compared to $13.434 billion during FY19, depicting a decline of 77.9 percent or $10.468 billion.

In terms of GDP ratio, the current account deficit settled at 1.1 percent of GDP in FY20 compared to 4.8 percent of GDP in FY19.

Analysts said that the marked improvement in current account deficit during the last year came on the back of improvement in trade balance as goods imports declined by 18 percent. However, exports sector performance remained weakened as it fell 7 percent. The Covid-19 has also hit the exports of Pakistan in the last four months of last fiscal year.

Inflows of home remittances were more than the goods exports proceeds and overall workers' remittances were increased by 6 percent to an all time high level of $23.12 billion in FY20.

The decline in imports is largely attributable to government regulatory measures like increase in import duties to curb the trade deficit, a higher exchange rate, decline in international oil prices and the impact on economic activity due to COVID-19 outbreak, they added.

Looking forward, analysts are expecting the current account deficit to clock in at $4-4.5 billion in this fiscal year (FY21) as COVID-19 related lockdowns and restrictions ease globally and international oil price also trend up.

Month on Month basis, Pakistan's current account deficit was $96 million in June-2020 compared to a surplus of $344 million in May-2020. During June, remittances surged by $600 million, however higher deficits of Goods and Services trade, resulted in a current account deficit.

According to the SBP, the collective deficit of goods, services trade and income stood at $22.749 billion in FY20 against $32.582 billion in FY19, showing a decline of $9.83 billion.

Some 18 percent contraction in the import bill has also helped contain the country's goods trade deficit at $20 billion, down 28 percent. There was some increase in the imports during the last month of FY20 due to medical equipment imports to fight against COVID-19. Similarly, with $5.4 billion exports and $8.2 billion imports, the services sector posted a $2.835 billion deficit. With a $5.863 billion deficit, income sector inflows were $562 million against outflow of $6.245 billion.

Copyright Business Recorder, 2020

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