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The economic activities are picking up and the current account is in surplus for three out of the last four months. The commodity price movements are in favour – low oil prices are keeping imports down while pricing is better in key textile exports due to global supply chain disruptions. The real support in current account is coming from remittances where high growth momentum continued – though the direction can reverse anytime. Much reduced foreign travel and other factors are also keeping current account in green.

In 2MFY21, the current account surplus stood at $805 million as compared to a deficit of $1,214 million in the same period last year. Cumulatively, the net positive impact is of $2 billion in two months’ number. That is encouraging. This is despite the fact that exports are down 17 percent year-on-year in Jul-Aug. With imports down by 13 percent year-on-year, trade balance improved by 8 percent.

Services trade balance is slashed to half as lesser import is resulting in lower port charges and lower travel is also helping the cause. The overall trade balance of goods and services is down by 17 percent or $761 million. This alone was not enough to bring current account into surplus. The real game changer is home remittances - up by 33 percent or $1,398 million in Jul-Aug 2020. But the rainy season is perhaps not over, as this uptick in remittances could be followed by much lower numbers.

Now to sustain better current account levels, exports have to grow. Unfortunately, exports have been stagnated for past many years. In FY20, exports fell by 7 percent year-on-year as COVID impacted the last quarter. Exports partially recovered in July ($1.89 bn) before taking a dip again in Aug ($1.53bn). The dip in August could possibly be due to rain disruption in Karachi, as the port city was almost closed in the last ten days. This implies that exports in September could be higher than normal – and may well go over $2 billion in September.

The price of food exports – rice and vegetables, have remained high in the first two months of this fiscal as compared to the same period last year. Similar pattern is observed in the textile value added items such as knitwear, bed wear, towels, and readymade garments. On the other hand, yarn prices fell. But channel checks confirm that yarn prices are moving up lately to lower the margins of exporters.

On imports front, the decline is encouraging. In FY19, imports fell by 18 percent and the declining trend continued this fiscal – 2MFY21 imports are down by 13 percent year-on-year. In August, imports stood at $3.2 billion. This is despite the fact that leading economic indicators such as auto, cement, electricity, fertilizer etc., are growing. It is the pricing that is still in Pakistan’s favor. For example, petroleum products quantity imports in Aug-20 was up by 48 percent (YoY) while the value of imports is down by 25 percent. This is because the price per unit of petroleum products is slashed by 50 percent. Similar is the story of crude oil, steel, iron, and rubber.

In case of remittances, nobody is certain what is going on. But this trend cannot continue for long. There are incidences of job losses in the Middle East; but the numbers are growing. One reason to explain is moving informal remittances to formal channel as there is less travel and hundi/hawala business is being affected. The other reason was seasonal – but the growth was much higher to negate seasonality factor. The third factor could be people sending savings back home, before returning.

With fear of COVID’s second wave in the West, the commodity prices would remain in Pakistan’s favour to keep import value low; and remittances will keep flowing from formal channels. These factors may continue to keep the momentum for the next couple of months.


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