The current account deficit is reduced by 39%

CARACHI:

Pakistan’s current account deficit – the gap between spending and foreign income – narrowed 39% month-on-month to $623 million in April, helped by workers’ remittances and reducing the import bill.

“The current account deficit narrowed to $623 million in April 2022; only two-thirds of the March 2022 deficit of $1,015 million,” the central bank said on its official Twitter account on Thursday.

“An increase in workers’ remittances (by $315 million) and a decline in imports (by $246 million) explain this reduction.”

In addition, export earnings improved by $83 million to $3.15 billion in the month under review from $3.07 billion the previous month.

However, in the first 10 months (July-April) of the current fiscal year, the cumulative current account deficit increased 27 times to $13.78 billion from just $543 million in the same period last year.

On a monthly basis, April is the second month in a row that the current account deficit has contracted.

Last month, the central bank reported that the non-oil current account balance remained in surplus for the second consecutive month in March.

However, it is unclear whether the non-oil current account remained in surplus for the third consecutive month.

The improvement in the current account deficit came following the imposition of restrictions on car financing by banks to reduce imports in September 2021.

Later, the then government increased taxes and duties on imports through a mini-budget in January 2022.

On Wednesday, the new PML-N-led coalition government banned imports of luxury items like cars over 1,800 cc, doubled import duties on mobile phones and raised tax rates on imports of dozens of items, including cold rolled steel, tires. and rubber.

The government estimated that the new measures would help reduce the import bill by $500 million a month and further reduce the current account deficit in the coming months.

Workers’ remittances hit an all-time high of $3.12 billion in April, up from $2.81 billion the previous month.

Imports of goods fell to $6 billion in April from $6.25 billion the previous month.

Arif Habib Limited’s research director, Tahir Abbas, said the current account deficit was significantly lower in April compared to market expectations for a deficit of $1 billion to $1.5 billion.

The deficit narrowed to $623 million, helped by a significant $500-600 million increase in workers’ remittances to a record high of $3.12 billion in April, from a monthly average of around 2 .5 billion in recent months.

“The decline in the current account deficit, however, looks unsustainable for May,” he said, adding that remittances were unlikely to stay above $3 billion in the month in course, as admissions peaked in April due to the Ramazan festival and Eid.

In addition, Pakistan’s energy import bill is expected to remain high as the country has opted to buy expensive liquefied natural gas (LNG) in the spot market to fill the gap.

“We estimated the overall current account deficit at $16 billion to $16.5 billion for fiscal year 2022,” he said.

Earlier, the central bank revised its current account deficit projection upward to $14 billion (4% of gross domestic product) for FY22.

Sherman Securities analyst Fayaz Hussain said in a commentary that “the number is lower than market expectations due to lower number of imports from State Bank of Pakistan (SBP) of 6 billion compared to the Pakistan Bureau of Statistics (PBS) figure of $6.7 billion, showing a difference of about $700 million.

The impact of the import ban is likely to be significantly lower than government estimates.

“We believe that the import ban on nearly 800 items in 33 categories will be partially offset by high imports of fertilizers (one-time increase) and an increase in the bill for energy imports, especially petroleum products, due to soaring international crude oil and oil prices.

Published in The Express Tribune, May 21st2022.

To like Business on Facebook, to follow @TribuneBiz on Twitter to stay informed and join the conversation.

Comments are closed.