Current account shrinks in first-half on weak imports

By Staff Reporter

KARACHI: Pakistan’s current account (C/A) deficit narrowed sharply in the first half of the current fiscal year amid dollar shortages to fund imports of goods, central bank data showed on Wednesday.

The State Bank of Pakistan said the current account deficit, which measures the flow of goods, services and investments into and out of the country, fell 60 percent to $3.7 billion in July to December, 2022, from $9.1 billion in the same period a year earlier.

The deficit narrowed 78 percent year-on-year to $400 million in December.

A decline in the C/A shortfall is driven by the efforts to bridge the trade gap. The central bank and the government implemented some administrative measures to rationalise imports.

Since last year the government has placed various restrictions on imports of goods after the current account deficit has spiralled out of control and the foreign exchange reserves have tumbled to just over a month of import cover.

In the July-December period of the current fiscal year, imports fell 18 percent to $29.5 billion, while exports fell 7 percent to $14.2 billion. Foreign exchange reserves held by the central bank stand at $4.3 billion.

Machinery imports are low due to a slowdown in overall economic activities, curbs by SBP on the import of plant and machinery, higher interest rates, and uncertainty with respect to the IMF programme,” brokerage Arif Habib Limited said in its report.

“Trade balance had improved but there was a drop in remittances that meant the CAD had increased from November 2022, while interest payments and dividend repatriation also played a role.” In the first half of the current fiscal year, remittances fell by 11 percent to $14.1 billion.

Analysts said the current account deficit will remain close to 2 percent of GDP in FY2023.