By Staff Reporter
KARACHI: The current account deficit surged to a 4-year high of $17.4 billion in the fiscal year of 2021-22 on soaring cost of energy imports, central bank’s data showed.
The deficit in the fiscal year 2021 stood at $2.8 billion
The current account deficit is widened to 4.6 percent of the gross domestic product in FY2022 from 0.8 percent in the last fiscal year, as the country is suffering its worst financial crisis. The State Bank of Pakistan (SBP) predicted in its May monetary policy statement that the deficit would be around 4 percent of GDP.
The average current account deficit for the last 10 years has been at 2.5 percent of GDP. Wiping out the country’s chronic current account deficit has been one of the main goals under the International Monetary Fund’s bailout programme.
The country has been gripped by a widening current account deficit, combined with fast depleting foreign reserves and domestic political instability has driven a sharp depreciation in the rupee, pushing up import costs. The rupee has slumped by 33 percent since the beginning of this year.
The global rating agencies expect the current account deficit to 3.5-4 percent of GDP this fiscal year as the interest rate hikes, steep depreciation, and sharp cut back in imports will result in a decline in consumption. The SBP sees the deficit falling to 3 percent of GDP in FY2023.
The size of the deficit is a cause of concern for the policy makers as rising demand increases the country’s vulnerability to external shocks. However, the SBP is confident that the country will comfortably meet its financing needs for the upcoming 12 months with the IMF loan programme on track.
The main driver behind the weak current account data was a 33 percent increase in goods imports to $72 billion in FY2022. The deficit was weighed down by strong demand for imports and the super resilient global commodity prices, especially oil.
Exports rose 27 percent to $32.45 billion, remittances from Pakistani rose to an all-time high of $31.2 billion in July-May FY2022. These inflows stood at $29.4 billion in the previous year.
By contrast, the non-oil current account balance was in surplus of $0.9 billion, according to the SBP’s data.
The current account deficit was $2.3 billion in June, highest since January 2022. June’s deficit was 59 percent greater than the previous month. It surged by 39 percent in June last year.
“As foreshadowed by earlier PBS Pakistan Bureau of Statistics data, a surge in oil imports saw CAD rise to $2.3 billion in June despite higher exports & remittances,” the SBP said on its official Twitter handle. “So far in July oil imports are much lower & deficit is expected to resume its moderating trajectory.”
The SBP said around 3.3 million metric tons of oil was imported in June, 33 percent higher than in May. “Together with higher global prices, this more than doubled the oil import bill from $1.4 billion to $2.9 billion. By contrast, non-oil imports ticked down.”
Mohammed Sohail, CEO at Topline Securities said huge oil imports amid load shedding affected the balance of payment situation in June. “However, looking at the current trend, the current account deficit will come down substantially in July,” Sohail added.
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