In a positive development, Pakistan’s current account has posted a surplus of $654 million in March 2023 after 28 months or since November 2020.
This is the first monthly surplus since November 2020, thanks to tighter monetary and fiscal measures along with administrative steps taken by the government, according to analysts at Topline Securities.
The numbers are higher than market expectations, analysts said. Pakistan posted a Current Account Surplus (CAS) of $654 million in March 2023 against a deficit of $36 million in February 2023.
The Balance of Trade in Goods and Services has improved considerably and clocked in at $1.595 billion in March 2023 against a Balance in Trade of Goods and Services of $3.437 billion in March 2022. Even on a MoM basis, Balance of Trade in Goods improved by 9 percent.
Workers remittances also improved significantly and clocked in at $2,533 million in March 2023 against $2,835 million in March 2022. Remittances have improved by 27 percent MoM. The trend in remittances is improving after a 10-15 percent gap between official and unofficial rate of the local currency has been eliminated.
However, exports for the month of March 2023 clocked in at $2,427 against exports of $3,071 million in March 2022 which is a decline of 21 percent YoY, mainly on the back of falling global demand and a fall in commodity prices.
Imports, on the other hand, clocked in at $3.990 billion in March 2023 against imports of $6.114 billion in March 2022, which is a decline of 35 percent YoY. Imports are down due to a weaker exchange rate along with administrative measures to curb imports.
While the Current Account Deficit had narrowed, the Balance of Payments (BOP) position remained under stress and noted that foreign currency reserves remained at low levels, according to the State Bank of Pakistan.
A reduction in imports led to a major improvement in the current account situation. Administrative measures such as a ban on Machinery Import which was later removed and replaced with banks prioritizing the imports of essential items.
Analysts expect import controls to be removed gradually and expect no abrupt change in policy. They estimate a FY23 current account deficit of US$3.5bn (<1% of GDP).
However, Pakistan’s main issue is external debt repayment crisis. Analysts believe that Pakistan has to talk to its lenders to push out maturities of its debt. Discussions on debt restructuring/reprofiling will be done after elections by a new federal government along with a new IMF program.
Overall, Pakistan’s current account surplus is a positive development for the country’s economy, and analysts hope that the trend will continue in the future.
Pakistan’s current account deficit narrows by 313% in 8MFY23
