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Saturday, June 8, 2024

Decline in CAD to $1.2 billion in July- SBP

In order to curb the deficit and fiscal instability, federal government and the State Bank of Pakistan (SBP) took administrative measures to reduce imports.

Current account deficit (CAD) has remained a constant problem of Pakistan which aggravated in recent past due to rapid depreciation in rupee against the US dollar and depleting foreign reserves. On a positive side, State Bank of Pakistan (SBP) has reported a decline in CAD to $1.2 billion in the first month of new fiscal year from $2.2 billion in June, last month of subsequent fiscal year.

The central bank attributes the shrink in deficit to wide-ranging measures taken in recent months to moderate growth and contain imports, including tight monetary policy, fiscal consolidation, and some temporary administrative measures.

Read more: Pakistan’s trade deficit declined by 18 percent in July 2022

The import bill fell by 38 percent to $4.86 billion in July 2022 as compared with $7.88 billion in June 2022, in line with the federal government’s expectations. On year-on-year basis, in July 2022, the imports were lower by $714 million, or 13 percent, compared to the same month last year, according to the Pakistan Bureau of Statistics (PBS).

In order to curb the deficit and fiscal instability, federal government and the State Bank of Pakistan (SBP) took administrative measures to reduce imports.

The government banned imports of more than three dozen of non‑essential luxury goods. The Ministry of Commerce (MOC), imposed the ban through SRO No. 598(I)/2022, effective from 19 May 2022.

Moreover, on 20 May, 2022, SBP published a circular requiring authorized dealers to receive approval from the FX operations department before issuing or amending a line of credit (LOC), registering, or amending a contract, making an advance payment, or authorizing transactions on an open account or collection basis.

Upon realizing the rush in which the decision was being taken, ban on most items was later lifted apart from three items: completely built-up (CBU) vehicles, cellphones, and electronics.

Banning fuel-efficient vehicles having engine capacity of less than 1,000cc would have serious consequences, considering the fact that locally assembled cars lack efficiency and would impact the already overblown oil import bill. However, import ban on luxury vehicles like sport utility vehicles (SUVs) can be considered a rightly directed step.

Furthermore, limiting the import of Completely Knocked Down (CKD) kits created panic for the auto assemblers operating in Pakistan. Country’s two leading car assemblers, Toyota and Suzuki announced temporary shutdown of their car plants on account of depleting inventory levels, exchange rate volatility and government regulations. As a result of the prevailing situation in auto-industry, car prices have skyrocketed.

Although these strict measures resulted in a decline in trade deficit by 18 percent in July due to reduction in import bill, exports of goods also declined by $0.8 billion from $3.1 billion in June and $2.3 billion in July, as per the central bank.