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.
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July current account deficit balloons to $773 million
KARACHI: The current account balance has posted a deficit of $773 million during first month of the current fiscal year, State Bank of Pakistan (SBP) said on Friday.
The SBP released Balance of Payment (BOP) statistics. The data revealed that the current account was in surplus of $583 million in July 2020.
However, the current account deficit has been narrowed in July 2021 when compared with $1.619 billion recorded in June 2021.
The balance of trade in goods has posted a deficit of $3.139 billion in July 2021 when compared with the deficit of $1.672 billion in the same month of the last year.
The export receipts have increased to $2.257 billion in the first month of the current fiscal year 2021/2022 when compared with $1.88 billion in the same month of the last fiscal year.
The import bill also recorded significant growth to $5.396 billion in the month under review when compared with $3.557 billion in the same month of the last year.
The inflow of workers’ remittances recorded at $2.707 billion in July 2021 when compared with $2.764 billion in the same month of the last year.
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SBP’s adoption of market-based exchange rate and its impact on current account balance: analysis
KARACHI: The current account balance of the country turned in to surplus following the State Bank of Pakistan (SBP) adopted market-based exchange rate regime.
The State Bank of Pakistan (SBP) adopted market-based exchange rate regime in May 2019. Resultantly, the current account deficit (CAD) of US$ 19.2 billion in FY2018 gradually came down to US$ 13.4 billion in FY2019 and improved further to US$ 4.4 billion in FY2020.
Subsequently, the CAD during July-March FY2021 turned into surplus of US$ 959 million on cumulative basis as compared to a deficit of US$ 4.1 billion in the same period of FY2020. Much of the improvement came from robust growth in the workers’ remittances since FY2020.
Following are some developments that have led to the sustained Current Account improvement so far in the current year:
Market based exchange rate led to a sharp reduction in kerb premium; supporting growth in workers remittances: Workers’ remittances continued to extend their unprecedented streak of above US$ 2.0 billion for the tenth consecutive month in March-2021. Notably, the monthly inflow subsequent to introduction of market-based exchange regime remains higher as compared to the average monthly inflow before the regime was put in place
This is well complemented by the entrenchment of drastic reduction in the kerb premium after introduction of the market-based exchange rate regime, which will be instrumental in encouraging any growth of remittances to flow through formal channels.
The existence of orderly foreign exchange market conditions, along with the emerging evidence that investment opportunities provided through Roshan Digital Accounts are gaining momentum, are going to support the Current Account in the coming months.
The transition towards the market based flexible exchange rate regime helped retain competitiveness in external trade. While nominal exchange rate is important, to retain external competitiveness, the inflation differential with trading partners and share of trade weight also matter. Accordingly, it is also important to note that the Real Effective Exchange Rate (REER), that accounts for these aspects, fared well after the adoption of the market-based regime in May 2019. As figure shows that REER index, relative to its level in May 2019 when the extent of overvaluation was deemed corrected, has remained relatively stable around the same level indicating that underlying competitiveness of the economy has been preserved.
Following adoption of market-based exchange rate, non-essential imports remained in check. Despite general appreciation of the Pak rupee during FY2021 so far, imports during July-February FY2021 increased by 7.8 percent (y/y). However, if adjusted for import of one-off items, which include wheat (US$ 916 million), sugar (US$ 127 million) and raw cotton in excess from same period during FY2020 due to domestic shortfall (US$ 480 million), import growth during July-February FY2021 amounts to a much lower level of 2.9 percent.
Export growth after adoption of the market-based exchange rate regime has been encouraging. After a decline in FY2020, led by the COVID-19 related disruptions during Q4 FY2020, exports during July-February FY2021 increased by 4.4 percent (y/y). The two-way movement of the Pak rupee against the US$ played a key role in stabilizing REER and maintaining export competitiveness during heightened global uncertainty. This is evident from the recovery in volumes of major exports after extreme pandemic period between April-July 2020 (Figure 3).
So far, this new mechanism has served well for rebuilding Pakistan’s FX reserve. As compared to FY2019 (US$ 7.3 billion) and FY2020 (US$ 12.1 billion), SBP official FX reserves stood at US$ 16.1 billion on 9th April 2021. Along with this, SBP’s forward swap liabilities have been curtailed to US$ 4.5 billion at present from US$ 8.0 billion during FY2019. In aggregate, country’s foreign exchange buffers increased by US$ 12.3 billion.
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Current account posts $773 million surplus in ten months
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.
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Current account posts $792m surplus in first quarter
KARACHI: The current account of the country registered a surplus of $792 million during first quarter (July – September) 2020/2021, State Bank of Pakistan (SBP) said on Wednesday.
According to Balance of Payment (BoP) details issued by the SBP, the country witnessed current account deficit of $1.49 billion in the same quarter of the last fiscal year.
The current account posted the surplus despite widening of trade deficit during the same quarter of the current fiscal year.
The trade deficit increased by 2.6 percent to $5.83 billion during first quarter of the current fiscal year as compared with the deficit of $5.69 billion in the same quarter of the last fiscal year.
The import bill of the country grew by one percent to $11.31 billion during first quarter of the current fiscal year as compared with $11.199 billion in the corresponding quarter of the last fiscal year.
The exports of the country however fell nominally by 0.65 percent to $5.47 billion during July – September 2020 as compared with $5.51 billion in the same period of the last fiscal year.
On a cumulative basis, workers’ remittances rose to a record $ 7.1 billion in first quarter of current fiscal year, 31.1 percent higher than the same period last year.