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Tuesday, December 5, 2023

Pakistan’s current account deficit balloons to $1.48bn in August

Pakistan's current account deficit has increased 80 per cent month-on-month to reach $1.48 billion for the month of August. This was expected as the import bill for the month of August reached the highest ever number of $6.31 billion. Experts call for growth measures.

Pakistan’s current account deficit has swelled to reach $1.48 billion for the month of August, showing a stark increase on a month-on-month (MoM) basis.

According to the data released by the State Bank of Pakistan, the deficit increased by $644 million or by 81 per cent on an MoM basis, up from the $814 million deficit recorded in July 2021.

When compared on a year-on-year (YoY) basis, the month of August 2020 posted a $255 million surplus compared to the deficit seen in August 2021.

If the deficit is seen on a cumulative basis, the first two months (July and August 2021) of the ongoing fiscal year 2022 saw a deficit of $2.29 billion compared to the surplus of $838 million for the same months for FY21.

Tweeting the Update, the State Bank of Pakistan wrote, “The current account deficit (CAD) rose to $1.5bn in Aug21 from $0.8bn the previous month, while SBP’s foreign reserves rose to an all-time high of $20 bn.”

“The recent rise in CAD reflects both the strong domestic recovery and higher international commodity prices,” the central bank added.

According to the tweet, the foreign reserves have reached an all-time high of $20.3 billion, showing an increase of 58.3 per cent from the fiscal year 2021, when the reserves stood at $12.7 billion.

Economic Journalist Ali Khizar commented on this development saying, “With average monthly imports of $5.8 billion in the last three months, highest ever reserves of $20 seems not enough, need to build more. ”

He added, “The current account needs to be curtailed- higher commodity prices are not in SBP’s control, but certainly, it has tools to deal with the demand.”

Similarly, Chairman NAVTCC Javed Hassan suggested the government, “..reduce the policy rates a bit more and boost growth. What are the reserves for but to use for ever-expanding CAD and defending currency.”

Pakistan’s rising import bill is becoming a major problem, as the second month of the ongoing fiscal year, 2022 saw the widening of the trade deficit by 133 per cent, data released for the month of August 2021 showed.

Read More: Pakistan’s trade deficit widens 133pc in August

The provisional data showed that the imports increased two times more than the increase in exports as the economy reopens. The trade deficit for August 2021 reached $4.05 billion compared to August 2020 when it was $1.740 billion.

The exports for August 2021 reached $2.26 billion compared to $1.58 billion in August last year, showing an increase in exports 42.5 per cent year-on-year. On the other hand, on a month-on-month basis, the exports went down 3.5 per cent from $2.34 billion in July 2021.

On the other hand, imports saw an 89.9 per cent increase year-on-year, reaching highest ever number of $6.31 billion in August 2021 up from $3.32 billion in the same month last year. On a month-on-month basis, the imports increased 12.7 per cent from $5.6 billion in July 2021.