KARACHI: The current account balance has posted a surplus of $773 million during first ten months (July – April) of 2020/2021 as compared with a deficit of $4.657 billion in the corresponding period of the last fiscal year, according to statistics released by State Bank of Pakistan (SBP) on Tuesday.
Deficit of trade and service has widened by $22.736 billion during first ten months of the current fiscal year as compared with the deficit of $20.599 billion in the corresponding period of the last fiscal year.
Primary balance has shown a deficit of $4.025 billion during the period under review as it narrowed from the deficit of $4.64 billion in the same period of the last fiscal year.
The major component in surplus of the current account is significant rise in worker remittances. The inflow of remittances increased to $24.24 billion during July – April 2020/2021 when compared with $18.79 billion in the corresponding period of the last fiscal year.
The current account balance posted a deficit of $200 million in April 2021 as compared with deficit of $33 million in March 2021 and deficit of $510 million in April 2020.
Analysts at Arif Habib Research said that it is quite certain that Pakistan is likely to end up with a Current Account (CA) surplus this fiscal year (FY21) of around USD 607 million.
This surplus comes after a gap of 10 years, last witnessed in FY11 of USD 214 million. Despite an expectation of more than 100 percent jump in the trade deficit compared to FY11’s figure, the primary reason for this surplus is the unprecedented and spiraling jump in remittance flows- defying the initial prediction of a decline due to the pandemic.
Moreover, the government seems to be in a comfortable zone given the foreign reserves floating around USD 23 billion mark, providing further support to the overall external position.
As for the stats, the SBP expects CAD to clock in below 1 percent of GDP for FY21 due to strong remittances and high value-added textiles-led exports. However, in FY22, we may see current account balance slipping into deficit (USD 4.4 billion), as trade deficits widens with imports picking up and workers remittances staying stable at the current levels (above ~USD 2.3bn per month).
It is pertinent to note that Pakistan has to rely on the current account deficit because it has been an essential aspect for overall economic growth with imports comprising heavily of capital assets. However, the concern here is the deficit’s sustainability that should be analyzed.
