KARACHI: The country’ current account deficit crossed the $11 billion mark in the first seven months of this fiscal year (FY22), mainly due to higher import bill.
As against the State Bank of Pakistan’s (SBP) expectations, the country’s external account further deteriorated with continued strong growth in goods imports.
The SBP reported on Thursday that cumulatively Pakistan’s current account deficit rose to $11.58 billion mark during July-Jan of FY22 against a surplus of $1.028 billion in the same period of last fiscal year (FY21). The primary reason behind the deficit was a 55 percent increase in goods imports because of rising commodity prices in the world market.
In January, while announcing the monetary policy the SBP was expecting some decline in the current account deficit during the second half of FY22. “Looking ahead, the current account deficit is expected to decline through the remainder of FY22, as import growth slows in response to a normalization of global commodity prices and the fuller impact of demand-moderating measures,” the SBP reported the previous month. However, contrary to SBP’s expectations the current account is still under pressure followed by higher import bill.
Month-on-month basis, the current account deficit mounted up by 33 percent in January 2022 and clocked-in at $2.55 billion as against $1.91 billion in December 2021. The current account deficit in January 2022 is also higher than January 2021, in which a $219 million deficit was recorded.
“The surge in the monthly current account deficit is largely due to imports in kind that are fully financed. Excluding these, the deficit would have been around $1 billion lower in January 22 compared to December 2021,” SBP said.
The detailed analysis showed the cumulative deficit of goods, service and income surged to $30.327 billion in the first seven months of FY22 compared to $ 17.79 billion in the corresponding period of FY21.
With $42.84 billion imports and $17.72 billion exports, the country’s good trade deficit surged to $25.121 billion during July-Jan of FY22 as against $13.712 billion in the same period of last fiscal year.
During the period under review, services trade deficit stood at $2.22 billion, with $3.94 billion exports and $ 6.174 billion imports. Similarly, with $ 3.4 billion payments and $ 425 million receipts, the primary income sector deficit rose to $ 2.9 billion mark in July-Dec of FY22.
According to the SBP’s revised projection, the current account deficit is likely to be around 4 percent of GDP by the end of this fiscal year. According to SBP the current account projection is subject to risks on both sides.
On the one hand, the deficit could be larger if global commodity prices take longer to normalize. On the other hand, it could be smaller if the fiscal consolidation associated with the Finance (Supplementary) Act has a faster and more pronounced impact on demand.
Copyright Business Recorder, 2022