Jul-Jan: C/A falls hugely on import curbs

21 Feb, 2023

KARACHI: The country’s current account deficit (CAD) sharply fell by 67 percent during the first seven months of this fiscal year (FY23) supported by lower import bill.

According to State Bank of Pakistan (SBP), the current account posted a $3.8 billion deficit in July-Jan of FY23 compared to $11.56 billion in the same period of last fiscal year (FY22), depicting a decline of $7.76 billion.

The primary reason behind the decline in current account deficit was a 20 percent decline in total goods imports that stood at $33.4 billion in the first seven months of this fiscal year down from $42.3 billion in corresponding period of last fiscal year.

On a Year on Year basis, the current account deficit narrowed by 90 percent to $242 million in January 2023 compared to a deficit of $2.46 billion in January 2022. On a Month on Month basis, the deficit was down 17 percent in January 2023 compared to December 2022, in which, $290 million current account deficit was recorded.

During Jan 2023, total exports and remittances also decreased by 7 percent YoY and 13 percent YoY, respectively, while goods imports fell by 38 percent.

Analysts said that a massive decline in the country’s import bill has largely contributed to the lower current account deficit. The government has taken a number of measures to curtail the import bill to save the precious foreign exchange and avoid the default. These measures have helped to contain the import bill.

However, analysts believe that once the restrictions on imports are lifted, import bill will rise significantly. They said that the government’s measures were very timely to reduce the pressure on external account.

Currently, the State Bank’s foreign exchange reserves stood at $3 billion and can cover only 20 days imports. The government is making efforts to bring more foreign inflows to build the sliding foreign exchange reserves of the country and avoid default. Recently, the IMF mission has also visited Pakistan for the 9th review of the Extended Fund Facility (EFF) program for the release of the next amounted to one-billion-dollar tranche.

The government has also announced a mini-budget by increasing the sales tax by one percent to 18 percent and other taxes to meet the revenue target.

Reuters adds: Current Account Deficit (CAD) dropped to $0.2 billion in January 2023, down 90% from last year as the rupee’s depreciation slowed down imports, the central bank said on Monday.

In less than a month, the cash strapped nation’s currency has lost more than a quarter of its value against the US dollar after the removal of artificial caps, and fuel prices have risen by more than a fifth as the government implemented fiscal measures required to unlocking funds from an International Monetary Fund (IMF) bailout.

During the first seven months of the current fiscal year, the country’s current account deficit decreased by 67% to $3.8 billion, compared with a deficit of $11.6 billion during the same period last year.

“This monthly deficit is lowest after 25 months, and lower than expectations,” said Mohammad Sohail, CEO of Topline Securities. Sohail, citing the falling currency. The weaker currency has made imports more expensive, effectively slashing them.

Tahir Abbas, Head of Research at Arif Habib Limited said that imports under machinery group and transport group have gone down 47% and 61% respectively was primarily due to stringent administrative measures taken by the State Bank of Pakistan (SBP) in addition to the an economic slowdown.

Copyright Business Recorder, 2023

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