The country's current account deficit posted 75 percent sharp decline during the first half of this fiscal year (FY20), mainly due to significant import compression. According to the State Bank of Pakistan (SBP), current account deficit narrowed down by 75 percent or $6.46 billion to $2.153 billion in July-Dec of FY20 compared to $8.614 billion in the same period of last fiscal year (FY19).
Economists said that most of the improvement in external account has come from a mass reduction in the country's goods import bill. The country's goods import fell 18 percent to $22.2 billion during first half of this fiscal year. However, exports have yet to contribute significantly as exports growth is very nominal, they added.
With the arrival of the first Extended Fund Facility (EFF) tranche of the IMF program and the increase in foreign portfolio investment (FPI), the current account gap was easily financed by the available financial inflows; they said and added that improvement in current account will also help build the country's foreign exchange reserves.
Collective deficit of goods trade, services and income stood at $14.732 billion in the first half of current fiscal year against $21 billion in the same period of last fiscal year.
Supported by contraction in imports, the country's overall goods trade deficit fell to $9.818 billion in July-Dec of FY20 compared to $16.2 billion in the corresponding period of last fiscal year. During the period under review, deficit of services sector decreased from $2.176 billion to $1.795 billion. Income sector deficit stood at $3.12 billion with $322 million inflows and $3.441 billion outflows.
The SBP believes that the current account balance is expected to improve due to more-than-expected contraction in imports. The central bank has also estimated that the current account deficit for FY20 is likely to stay within the range of 1.5-2.5 percent of GDP.
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