Pakistan’s economy is moving in the right direction, said Prime Minister on Monday after the current account balance posted a surplus of $424mn in July 2020.
“MashaAllah Pakistan’s economy is on the right track. After current account balance posted deficit of $613mn in July 2019 and a deficit of $100mn in June 2020, in July 2020 current account balance swung upwards to a surplus of $424mn,” said PM Khan in a series of tweets.
PM Khan credits economic recovery to improvements in exports
Imran Khan added in his tweet that this drastic change is the result of continuous improvement in exports which increased by 20 percent as compared to in June 2020 and record remittances.
This is the fourth monthly surplus since last October and a significant improvement on the deficit of $613mn in the same month last year.
After a gap of seven months, Pakistan’s current account balance – the difference between government’s foreign income and expenditure – once again turned into a surplus of $13 million in May 2020 but at the expense of economic growth.
1/3 Pakistan’s current account balance swung into a surplus of $424 mn in July 2020 after posting a deficit of $100 mn in June. For details: https://t.co/fMcRUupmT2
— SBP (@StateBank_Pak) August 24, 2020
“The surplus was primarily achieved after Pakistan’s export earnings dropped to a 13-year low at $1.27 billion and import payments fell to a 10-year low at $2.8 billion in May,” BMA Capital Executive Director Saad Hashmi said while talking to The Express Tribune.
The slowdown in imports and exports clearly indicated a significant drop in economic activities in response to the coronavirus pandemic, he said.
Besides, improvement in the receipt of workers’ remittances, decline in the trade deficit of services and increase in other current transfers (remittances received through currency dealers) helped to turn the current account balance into a surplus from the deficit.
Pakistan achieved current account surplus of $13 million in May compared to a deficit of $530 million in the previous month of April and $1 billion in May 2019, the State Bank of Pakistan (SBP) reported on Wednesday.
With this, the current account deficit narrowed 73.6% to $3.29 billion in the first 11 months (July-May) of the outgoing fiscal year 2019-20 compared to $12.45 billion in the same period of last year.
“The significant drop in exports (to over a decade low) is indicating a massive hit to local economic activities amid the Covid-19 pandemic,” he said. “The government should immediately set its focus on increasing exports by finding new markets, introducing value-added products in export markets and through policy initiatives,” he added.
He said exports may bounce back quickly, even next month if the government put extra efforts as the world gradually resumed economic activities. Major economies (Pakistan’s trade partners) like European nations, the US and China have reopened in recent days and weeks.
Pakistan still exports basic commodities rather than value-added and branded products. “The demand for basic commodities always remains intact,” he stated.
The world is talking about the outbreak of the second wave of Covid-19. It, however, seemed impossible the world would re-impose lockdowns to contain the Covid-19 going forward. Countries would rather make sure that people adopt precautionary measures to deal with the situation despite shutting down their economies again.
Successful COVID-19 contingency plans
“There is increased awareness among people globally, including Pakistan, for the adoption of precautionary measures and SOPs (standard operating procedures) to stay with the infection till its successful vaccine is launched in a period of 9-10 months,” he said.
Cumulatively in the 11 months, the central bank reported, the import of goods shrank almost 19% to $38.88 billion compared to $47. 83 billion in the same period of the last year.
Unfortunately, the export of goods decreased by 7% to $20.94 billion compared to $22.46 billion.
Read more: Economy of Pakistan and The Coronavirus
Luckily, the workers’ remittances improved 3% to $20.65 billion compared to $20.10 billion.
Hashmi said economic managers need to keep a vigilant eye upon workers’ remittance as well as they may also fall following massive layoffs in overseas countries. “Pakistanis lost their jobs in the foreign markets are arriving back to their homeland,” he said.
“Despite the surplus, there was a sharp deterioration in the overall balance of payments, due to a $3.5 billion month-on-month decline in the financial account,” JS Research said in a commentary.
Governor SBP Dr. Reza Baqir apprised the PM on key features of Roshan Digital Accounts and the plan for their launch. These accounts will open a new era of access to Pakistani banks for overseas Pakistanis. Roshan Digital Accounts are coming soon! pic.twitter.com/sdswpL2NtM
— SBP (@StateBank_Pak) August 23, 2020
The deterioration was expected given the drop in foreign exchange reserves in the recent weeks post $1.4 billion inflow from the International Monetary Fund’s (IMF) emergency loan in April. “During May-2020, debt repayments stood at $1.8 billion particularly in the absence of any material fresh debt inflows.”
“Strong turnaround is due to a continued recovery in exports and record-high remittances, with support from several policy and administrative initiatives by SBP and government. Exports sustained strong recovery, with m/m growth of further 19.7pc in July on top of 25.5pc in June,” said SBP.
As per the data released by the Ministry of Commerce, Pakistan exports for the month of July stood at $1.99bn as compared to $1.88bn recorded in July 2019, showing a yearly increase of $109mn.
Current account deficit improves due to decreased Imports
Meanwhile, Imports for the month of July 2020 stood at $3,540mn as compared to $3,696 recorded in the same period last year, showing a decline of 4.20pc or $156mn. Overall, the country’s export/import balance stood at ($1,542mn), declining by 14.7pc or $266mn as compared to the same period last year.
Whereas, the remittances from overseas Pakistanis reached $2,768 million in July 2020, the highest ever amount in one month in the history of the country. The remittances showed an increase of $740mn (or 36.5pc) over last July and an increase of $302mn (or 12.2pc) over June. This is the highest ever recorded workers’ remittances in a single month.
AFP with additional information from GVS News Desk