KARACHI: The country’s current account deficit crossed the $15 billion mark during the first eleven months of this fiscal year (FY22), mainly due to higher import bill following soaring commodity prices in the world markets.
The State Bank of Pakistan (SBP) Tuesday reported that the country’s current account deficit rose by 1,185 percent during this fiscal year. The major reason behind the widening current account gap is the uptick in the trade deficit.
According to the SBP, cumulatively the country recorded a $15.199 billion current account deficit during July-May of FY22 compared to $1.183 billion in the same period of last fiscal year (FY21), depicting an increase of $14.016 billion.
Analysts said that the pressures on the current account deficit are still emerging due to abandoned imports. As the current account is soaring due to higher imports, the government is taking a number of measures to reduce the import bill.
They said that the pressures on the current account also reflected in the market-based exchange rate, which is constantly depreciating against the US Dollar for the past two months. On Tuesday, the dollar was trading at Rs 206.
Month-on-month basis, the country’s current account deficit also sharply increased by 130 percent during the month of May 2022 compared to April 2022 because of lower workers’ remittances. Current account deficit was widened to $1.425 billion in May 2022 compared to $618 million in April 2022, showing an increase of $807 million.
“While overall imports fell compared to April, a decline in remittances and exports on account of Eid holidays contributed to this rise in current account deficit in May,” the SBP said.
Moreover, the SBP mentioned that excluding in kind imports that are fully financed and thus do not undermine sustainability of the current account deficit, the monthly deficit was more modest at $1 billion.
The primary reason behind the higher deficit was a 31 percent increase in total imports to $65.46 billion in the first eleven months of this fiscal year. However, total exports increased by 27 percent to $29.33 billion. As A Result, the country’s trade deficit reached the 36 billion mark during July-May of FY22 compared with a deficit of $24.8 billion during the same period last year.
Presently, the country is facing a serious cash crisis as the foreign exchange reserves are gradually depleting followed by massive external debt payments, while foreign inflows are not sufficient to meet the external deficit.
Recently, Pakistan and China signed a commercial loan deal of RMB 15 billion equal to $2.3 billion and the agreed amount arrived into the State Bank account last Friday. With the arrival of these inflows, the total liquid foreign exchange reserves held by the country are likely to cross the $16 billion mark after accumulating the external debt payments. The country’s total liquid foreign exchange reserves stood at $ 14.21 billion as of Jun 17, 2022 including $8.237 billion of SBP and $597 billion of commercial banks.
The government is making efforts to release two tranches of the Extended Fund Facility (EFF) of IMF to build the foreign exchange reserves. Negotiations with the IMF will be started in the next few days.
Copyright Business Recorder, 2022