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Pakistan

Pakistan’s current account deficit shrinks 90% YoY to $0.24bn in January: SBP

  • Deficit during 7MFY23 reduces over 67%, clocks in at nearly $3.8bn
Published February 20, 2023

Pakistan’s current account deficit (CAD) shrank by more than 67% during the first seven months of this fiscal year (FY23) due to a significant decline in the import bill, with the negative gap during January alone recorded at $0.242 billion, a decline of 90% YoY.

The State Bank of Pakistan (SBP) on Monday reported that cumulatively, the country recorded a current account deficit amounting to $3.799 billion in Jul-Jan FY23 compared to $11.558 billion in the same period of the previous fiscal year, a decline of $7.75 billion.

Current account deficit recorded at $0.4 billion in Dec 2022: SBP

“CAD recorded $0.2 billion in January 2023 against a deficit of $2.5 billion in January 2022,” the central bank said.

“On a YoY basis, the primary reason behind the decline in deficit was a 38% YoY decline in total imports. However, total exports and remittances also decreased by 7% YoY and 13% YoY, respectively,” said brokerage house Arif Habib Limited (AHL) in a note.

The decline comes as Pakistan moved to restrict imports, curtailing the opening of letters of credit for a variety of sectors much to the dismay of businesses who rely on inward shipments for their operations.

The move came as Pakistan’s foreign exchange reserves depleted to critical levels, at less than a month of import cover. Islamabad is currently engaged in talks with the International Monetary Fund (IMF) for the resumption of the stalled Extended Fund Facility (EFF) programme, which has been deemed critical.

Last week, talks between the IMF and Pakistan resumed virtually, as the two sides look to reach a deal to unlock funding critical to keep the country afloat.

Pakistan’s current account deficit shrinks to $0.28bn in November: SBP

The two could not reach a deal earlier this month and a visiting IMF delegation departed Islamabad after 10 days of talks but said negotiations would continue. Pakistan is in dire need of funds as it battles a wrenching economic crisis.

Pakistan’s foreign exchange reserves held by the central bank have fallen to just above $3 billion, barely enough to cover three weeks of imports.

A resumption of the IMF programme would also unlock other avenues of funding for Pakistan.

Last week, Fitch Ratings in its report said that the current account deficit in FY23 is expected to hit $4.7 billion.

“As such, we forecast a full-year deficit of $4.7 billion (1.5% of GDP) in FY23 after $17 billion (4.6% of GDP) in FY22. The narrowing of the CAD has been driven by restrictions on imports and forex availability, as well as by fiscal tightening, higher interest rates and measures to limit energy consumption,” the ratings agency said.

Comments

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junaid Feb 20, 2023 01:25pm
Not a headline to be posted.. The only reason for decline is Zero business and imports, no strategic improvement in the inflows.
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rana amir Feb 20, 2023 01:53pm
Fact Sheet. In these next 3 months you will see surplus 1 billion dollar on average. The reason first replacememt by local energy product from thar, hydro karot, and other hydel and nuclear. This will curtail the massive import bill and international tharmal coal price drop. Hence Pakistan will need to spend less on imports. The other factor is hoarding of dollar and smuggling of dollar and foreign remittances will increase. This will show impact in February in the current month.
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Rafique Feb 20, 2023 02:10pm
government should take effective action to minimize the import bill in order to promote the local goods market. we send our huge money to other countries to procure routine things that will ultimatly discourge to local business community. we all know this is hard route to control the import bill but if we keep walking on it & set of direction then sooner or latter we would be in better position
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Mohsin Bhatti Feb 20, 2023 03:22pm
Hello
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Shahbaz Ali Feb 20, 2023 04:13pm
This reduction is causing pain for some businesses. But it is creative destruction. When imports will be reduced, then incentive for domestic production will increase and many new businesses will grow.
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