Current account deficit stood at $17.5 billion (4.6% of GDP) in the financial year 2021-22. Overall economic pie has expanded. It was the year of highest-ever imports, exports and remittances. The bigger crisis is of drying external funding to re-roll government debt. Otherwise, the current account deficit in dollar terms is even lower than the peak of FY18 at $19.2 billion. However, the policies are ought to reduce the current account deficit for external balance to sustain. And the control is required on imports.
The deficit in June 2022 stood at $2.3 billion - 60 percent higher than the last month. Exports stood at over $3 billion. Remittances flow remained steady at $2.8 billion. The non-oil imports stood at $4.1 billion – which is seven percent less than last 12 months average. The thorny issue which is partially responsible for the PKR free fall is higher volumes of petroleum imports (including LNG) at peaking prices. Oil and gas imports stood at $2.9 billion – more than double of last 12 months average.
And the full impact is yet to come, as the recent payment pressure in the interbank market for the last two weeks is due to retiring L/Cs of oil imports in May and June. The impact on current account is to be reflected in July. Expect another month of high deficit.
That is why every sane economic voice was advising to the government to pass on the petroleum prices to consumers and to not import LNG at spot in a failed attempt to end loadshedding. The need was and is to reduce the working hours of week.
The snowball started from March when the then PM froze prices. There was no element of subsidy at that time. Within 40 days, the new government was formed. And they took another 6-7 weeks to start passing on the prices. Meanwhile, the international prices sharply increased for refined products – petrol and diesel. The market was anticipating price increase and imported higher volumes than required to have capital gains. At the same time, PM imported multiple cargos at spot at prices which were simply not affordable. The bill more than doubled from usual. Combining the two, around $1.3 billion additional import than usual happened last month.
This madness will be reflected in July numbers too before calming in August. Diesel and furnace oil reserves are topped up. The imports are down and so are international prices. Be it a coincidence or bad planning, the fact of the matter is Pakistan built its reserves (which usually run low) at peaking prices.
The good news is that barring oil and a few other sectors, imports are falling. Food imports are down to half from the last month. Mainly the reduction is in palm oil, which could be a temporarily blip. Machinery imports have reduced a bit – reduction is in mobile phones, as barring phones, machinery imports are up. Then there is reduction in auto imports. In both cases, SBP is extremely miser in allowance.
This rationing is likely to continue in these and other sectors while oil imports are expected to be low. The payment pressure will be less within a month or so. The IMF would be back by that time. The currency may appreciate as fast it depreciated. All it needs is political stability.
Exports kept on its good performance. Reached $32.5 billion – 26 percent higher than last year. The textile exports are up at $18.4 billion. The recession fears in developed markets are resulting in decline of clothing demand, which could bring export growth in check.
Remittances stood at $31.2 billion – six percent up from a higher level. The growth is hard to sustain given the global economic slowdown. Thus, the uptick in remittances and exports is limited. That is why the imports must be significantly curtailed from $72 billion (up by 32%) in FY22.
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