Current account spread at $ 632 million

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KARACHI:

Pakistan’s current account deficit – the gap between foreign spending and income – hit a 17-month high of $ 632 million in May 2021, mainly due to the slowdown in remittances from Pakistani workers in the foreign exchange and a drop in export earnings compared to the previous April.

“The current account deficit rose to $ 632 million in May from $ 188 million in April, as exports fell due to partial lockdowns (imposed during the third wave of Covid-19) and long vacations from the ‘Eid, and remittances were moderate as usual after Eid, “the central bank said on Twitter.

The high deficit can trigger a depreciation of the rupee against the US dollar and erode the country’s foreign exchange reserves.

“The current account deficit is well above market expectations,” a leading analyst said on condition of anonymity in an interview with The Express Tribune.

“We were expecting a deficit of around $ 300 million during the month (May 2021) with a strong expectation that the current account would end up with a moderate surplus in fiscal year 2020-2021.”

The high level of the deficit in May reduced the current account surplus to $ 153 million in the first 11 months (July-May) of the current fiscal year, compared to a surplus of about $ 750 million during of the first 10 months.

As a reminder, the country had recorded a current account surplus for the first five months (July-November) of the current fiscal year. However, he experienced a deficit in the remaining six months (December-May).

The current account balance was in surplus at $ 329 million in May 2020, according to the State Bank of Pakistan (SBP).

The analyst said that May 2021 was the second month in a row that the import volume remained particularly high at $ 5.95 billion. “High imports are not sustainable because the overall size of export earnings has remained less than half of the volume of imports,” he said.

“A larger influx of workers’ remittances has enabled the country to pay for larger imports and to repay foreign debt,” he said.

BMA Capital executive director Saad Hashmi, however, argued that the current account balance will improve in the last month of the outgoing fiscal year, which is June 2021.

“Remittances could increase again in June ahead of Eidul Azha (which falls in the second half of July), as Pakistanis abroad traditionally send higher remittances before Eid,” he said. he declares.

Second, export earnings are also expected to increase in June, given the higher number of working days in the month compared to May, he said.

More importantly, non-resident Pakistanis were also sending additional remittances through the Roshan Digital Account (RDA). They have sent over $ 1.3 billion in the nine months since the RDA launched in September 2020, he said.

Credit for the current account surplus in the first 11 months of FY21 should go to the GDR. This would extend the support needed to maintain the surplus balance into the full fiscal year ending June 30, he said.

“Rough estimates suggest the country will run a moderate current account deficit of $ 100-200 million in June with rising remittances, accelerating exports and stagnating imports,” he said. .

“The current account will show a nominal surplus for the whole year at the end of June.”

Cumulatively, in the first 11 months of FY21, workers’ remittances soared 29% to a record high of $ 26.73 billion from $ 20.65 billion in the same period from last year, according to the SBP.

Merchandise imports jumped 18% to $ 47.26 billion in the 11 months under review, from $ 40.08 billion in the same period a year earlier.

Exports of goods rose 10% to $ 23.12 billion in the 11-month period, compared to $ 20.96 billion in the corresponding period last year.

Imports of services, however, fell 15% to $ 6.89 billion in fiscal year July-May 21, from $ 8.1 billion in the corresponding period last year.

Imports of services have remained low due to the total or partial suspension of international travel, including for religious purposes like Hajj and Umrah, with people spending huge sums on international tourism.

Declining imports of services supported the national economy to maintain the current account in surplus during the first 11 months of the current fiscal year.

In addition, services exports improved 6.4% to $ 5.38 billion in the 11 months under review, from $ 5.06 billion in the same period last year.

Posted in The Express Tribune, June 26e, 2021.

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