The improvement in Pakistan's external account has gained further momentum as current account deficit posted a notable decline of 73 percent during the first month of this fiscal year (FY20).
The country's external account was under pressure for the last two years due to higher current account deficit followed by massive import payments and the federal government was making efforts to bring down the deficit.
According to State Bank of Pakistan (SBP), the country's current account balance posted $ 579 million deficit in July 2019 compared to $ 2.13 billion in same period of last fiscal year (FY19), depicting a decline of $ 1.551 billion.
Economists said that with massive decline in current account deficit, concerns on Pakistan's external sector have been muted. Improvement in trade deficit coupled with slight growth in workers' remittances resulted in massive reduction in the current account deficit during the first month of this fiscal year, they added.
They said that the massive decline in machinery imports, following the conclusion of early phase of CPEC projects and slow economic activity, have contributed significantly to improvement in the current account deficit by lowering of goods import payments.
According to SBP, cumulative deficit of trade, services and income stood at $ 2.934 billion in first months of FY20 as against $ 4.402 billion in the same period of last fiscal year.
The detailed analysis revealed that contractions in import bill of goods and services were the primary factors of massive decline in current account deficit. With $ 4.08 billion imports and some $ 2.23 billion exports, the country's overall goods deficit was declined by 45 percent to $1.874 billion in July 2019. During the period under review, services trade deficit was $ 473 million down from $ 517 million with $ 426 million exports and $ 899 million imports. Similarly, income sector outflows stood at $ 651 million and inflows at $ 37 million, depicting a deficit of $ 614 million during July 2019.
Analysts said that the lower current account deficit will also help to reduce the pressure on the depleting foreign exchange reserves of the country. It may be mentioned here that during the last fiscal year, current account deficit was declined 32 percent to $ 13.508 billion.