Karachi, August 19, 2024 – Pakistan witnessed a sharp 78% reduction in its current account deficit for July 2024, driven by robust export performance and a surge in remittances. The State Bank of Pakistan (SBP) reported on Monday that the deficit for the month stood at $162 million, a significant improvement from the $741 million recorded in July 2023.
Key Factors Behind the Improvement
The most notable contributor to this dramatic contraction was the inflow of workers’ remittances. In July 2024, remittances reached an unprecedented $30 billion, dwarfing the $2.03 billion received in the same month of the previous year. This surge in remittances provided a substantial cushion against the pressures on the current account, highlighting the critical role that overseas Pakistanis continue to play in the country’s economic stability.
In addition to remittances, Pakistan’s export sector showed promising growth. Exports for July 2024 totaled $2.31 billion, marking a 12% increase from the $2.06 billion recorded in July 2023. The growth in exports reflects the effectiveness of recent initiatives aimed at enhancing the country’s trade performance, despite global economic challenges.
Rising Import Bill and Trade Deficit
Despite the positive trends in remittances and exports, the country’s import bill grew by 16%, reaching $4.38 billion in July 2024, compared to $3.69 billion in the same month last year. This increase in imports, driven largely by higher energy and raw material costs, resulted in a widening of the trade deficit by 21%. The trade deficit for July 2024 was recorded at $1.97 billion, up from $1.63 billion in July 2023.
The rise in the trade deficit underscores the challenges Pakistan faces in managing its external accounts, as the country continues to rely heavily on imports for essential goods. However, the substantial improvement in the current account deficit suggests that the country has managed to balance these pressures with stronger inflows, at least in the short term.
Outlook for the Fiscal Year
The significant reduction in the current account deficit for July 2024 sets a positive tone for the start of the fiscal year 2024-25. If the trends in remittances and exports continue, they could provide a much-needed buffer against external vulnerabilities. However, the rising import bill and the associated trade deficit remain areas of concern that will require careful management in the months ahead.
As Pakistan navigates the complexities of global economic conditions, the ability to sustain these positive trends will be crucial for maintaining the balance of payments and ensuring economic stability in the long run.
