Pakistan’s current account(The current account is a country’s trade balance plus net income and direct payments) records a deficit for the consecutive second month, with a deficit of $229 million in January. However, the deficit was higher in December 2020, of value $652 million.
This means compared to December 2020, in January 2021, the deficit decreased by 65.4%.
Overall, the current account for the first seven months of FY21 remained in surplus. The country’s current account was in surplus amounted to $912 million during July to Jan of this fiscal year (FY21) as against a deficit of $2.54 billion during the same period of last fiscal year (FY20).
According to the State Bank of Pakistan, compare to December, in January exports increased supporting the significant increase in remittances. However, imports of wheat, sugar, and palm remained high to cater to the domestic shortfalls. Additionally, imports of machines remained in double digits. This capital investment is positive in a way that shows the economy is recovering.
With higher inflows of home remittances, the outlook for the external sector has already improved. As per SBP’s revised projections, the current account deficit is to be in the range of 0.5-1.5 percent of GDP compared to previous estimates of 1.0 to 2.0 percent of GDP. The revision is mainly due to an upward adjustment in workers’ remittances, which are now expected to be $24-25 billion during this fiscal year.
It may be mentioned here that Furthermore, the surplus can not only ease the pressure on external debt management but also provide the government with an opportunity to build the country’s depleting foreign exchange reserves.
Theoretically, a decrease in the current account deficit leads to a decrease in the supply of a nation’s currency in the foreign exchange markets while US dollars increase. Therefore, in the currency market, there will be an increase in the demand for the Pakistani Rupee. This might lead to currency appreciation.