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C/A surplus turns to deficit on higher import bill

  • Country's import bill for the last month of FY21 was $6.32 billion
  • Pakistan ended with a C/A deficit of $1.85 billion in FY21, against deficit of $4.449 billion in FY20
Published July 20, 2021
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KARACHI: After 11 months' surplus, the cumulative current account (C/A) posted a deficit of $1.8 billion during July-June FY21, mainly due to higher import bill.

The current account, on a cumulative basis, was surplus in the July-May FY21 on the back of record home remittances inflows, recovery in exports and deferred interest payments on external debt, however, the surplus turned into deficit end of the last fiscal year mainly due to rising industrial imports. The State Bank of Pakistan (SBP) on Monday that the FY21 ended up with a current account deficit of $1.85 billion against $4.449 billion deficit in FY20, depicting a decline of 58 percent or $2.59 billion.

The cumulative current account was in surplus of $153 million in July-May FY21. The cumulative surplus during the first 11 months of last fiscal year was mainly originated from a healthy increase in workers' remittances, along with contractions in both the primary income and services deficits, in the wake of a drop in interest payments on external debt and lower international air travel, respectively.

However, now the country's import bill is increasing due to substantial import of agriculture commodities, industrial raw material and capital goods. According to SBP, the country's import bill for the last month of FY21 was over $6.32 billion, of which current account posted $ 1.64 billion deficit during June 2021 against $121 million in June 2020.

The SBP, in its recent report has already intimated higher current account deficit in coming months. According to SBP, the current account deficit is expected to rise, mainly due to a further widening in the trade deficit on account of likely rise in import payments. The increase in imports reflects higher oil prices, which are now projected to add to the pressures coming from consistently growing import volumes of energy commodities.

The recent rising trend in global non-energy prices would also contribute to the increase in import payments. In addition, in the wake of the significant borrowing under the Temporary Economic Refinance Facility (TERF), capital goods imports are also projected to increase in the future.

The detailed analysis showed that cumulative deficit of goods, service and income surged to $ 34.7 billion in FY21 compared to $ 29.88 billion in same period of FY20. With $ 53.785 billion imports and $ 25.6 billion exports, the country's goods deficit reached $ 28.155 billion during July-June FY21 as against $ 21.1 billion trade deficit in corresponding period of FY20.

During the period under review, services trade deficit stood at $ 1.875 billion, with $ 5.9 billion exports and $ 7.8 billion imports in the last fiscal year. Similarly, with $ 5.27 billion payments and $ 602 million receipts, primary income sector deficit declined to $4.67 billion in FY21.

Pakistan had received over $29 billion dollar workers' remittances during July-June FY21. Further support to the external account came from deferred interest payments on external debt through the Debt Service Suspension Initiative (DSSI), curbs on international air travel, and lower global oil prices.

Copyright Business Recorder, 2021

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