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KARACHI: The country’s current account continued to deteriorate and posted over $9 billion deficit during the first half of this fiscal year (FY22) mainly due to higher import bills.

Despite strong growth in exports and remittances, the current account deficit has increased sharply due to an unexpected healthy increase in goods imports. According to the State Bank of Pakistan (SBP) the higher current account deficit is because of a significant trade shock amid ongoing economic recovery.

The SBP on Saturday reported that the cumulative current account recorded a $9.092 billion deficit during July-Dec of FY22 against a surplus of $1.247 billion in the same period of last fiscal year (FY21).

Current account and trade deficits are expected to gradually moderate in the second half of FY22 as global prices normalize with the easing of supply disruptions and tightening of monetary policy by major central banks. SBP has already revised its current account deficit projection. According to SBP, the current account deficit is projected at around 4 percent of GDP by the end of this fiscal year.

SBP governor believes Pakistan can ride out rising external account pressures

Pakistan’s import bill significantly rose by 57 percent owing to strong domestic recovery and rising commodity prices in the world market. Around 70 percent of this increase in imports stems from the sharp rise in global commodity prices, while the rest is attributable to stronger domestic demand.

The country’s total imports surged to $36.412 billion in the first half of this fiscal year compared to $23.201 billion in the corresponding period of the last fiscal year, depicting an increase of $13.2 billion. During the period under review, goods export rose by 30 percent or $3.4 billion to $15.236 billion up from $11.815 billion. Cumulatively, the balance of trade recorded a deficit of $21.176 billion during July-Dec of FY22 compared with a deficit of $11.386 billion in the same period of the last fiscal year.

The detailed analysis showed that the cumulative deficit of goods, service and income surged to $25.520 billion in the first half of FY22 compared to $ 15 billion in the same period of FY21.

During the period under review, services trade deficit stood at $1.8 billion, with $3.4 billion exports and $ 5.2 billion imports in July-Dec of this fiscal year. Similarly, with $ 2.8 billion payments and $ 369 million receipts, the primary income sector deficit stood at $ 2.5 billion in July-Dec 2021.

November: Pakistan's current account deficit widens further to $1.91bn

Month-on-month basis, the current account deficit was broadly unchanged in December 2021 and clocked-in at $1.93 billion as against $1.89 billion in November 2021. However, the current account deficit in December 2021 is some 207 percent higher than December 2020, in which a $629 million deficit was recorded.

In order to contain inflation and address the challenges on the external account, the SBP has increased the key policy rate by 2.75 percent to 9.75 percent during the first half of this fiscal year. SBP believed that recent policy actions including policy rate hikes would help to reduce the import volumes through the rest of the year.

In addition, the rising current account deficit has also compelled the country to borrow from friendly countries and international financial institutions to build the depleting foreign exchange reserves.

Copyright Business Recorder, 2022

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