By Staff Reporter
KARACHI: Pakistan’s current account swung to a surplus in September for the first time this fiscal year, offering a reprieve to policymakers grappling with dollar shortages, even as foreign direct investment plunged 34% in the first quarter amid waning interest from key partners like China.
The current account posted a surplus of $110 million in September, reversing deficits of $379 million in July and $245 million in August, according to data released by the State Bank of Pakistan. The result came as a surprise to many, who had predicted more deficits in the coming months.
September’s performance marked a sharp improvement from the same month a year earlier, when the current account logged a deficit of $52 million. For the full fiscal year that ended in June, the current account recorded a surplus of $1.932 billion, bolstered by record inflows of $38 billion in remittances. Those funds helped stabilise the exchange rate and shore up the central bank’s foreign exchange reserves.
The SBP governor recently said the central bank purchased $20 billion from the interbank currency market in the last three years to improve its reserves and make external payments. Still, the first quarter of the current fiscal year — which runs from July to June — showed a cumulative current account deficit of $594 million, up from $502 million in the same period a year ago. The July-August period alone registered a combined deficit of $624 million, compared with $430 million in the prior year.
Exports edged higher in the July-September quarter, climbing to $7.9 billion from $7.4 billion a year earlier, the data show. Imports, however, rose more sharply, increasing by $1.2 billion to $15.438 billion from $14.255 billion. Services exports ticked up slightly to $2.2 billion, while services imports advanced to $3.2 billion. Separate data from the Pakistan Bureau of Statistics pegged the trade deficit for the period at $9.37 billion, widening from $7.05 billion a year ago.
The country may need additional dollars to import food items like wheat and sugar in the wake of recent devastating floods, in order to maintain supply and curb potential spikes in food prices that could fuel inflation. That requirement could push the trade deficit even wider in the months ahead. Even so, Pakistan has managed to keep the exchange rate stable, which has encouraged inflows, particularly through remittances. Worker remittances exceeded $3 billion in the first three months of the fiscal year, signaling that inflows could match or exceed the $38 billion received in the previous year.
On the investment front, foreign direct investment slumped to $568.8 million in the July-September quarter, down from $864.6 million a year earlier. The government has struggled for the past three years to boost inflows, but foreign investors have not found Pakistan a suitable destination. The steepest drop came from China, with inflows tumbling to $188 million from $502.6 million in the same period last year. It was difficult for analysts to pinpoint the exact reasons for the decline, though some expressed confidence it would improve in the coming months. Other notable inflows included $96 million from Hong Kong, $55 million from Switzerland, $50 million from the United Arab Emirates and $53 million from the UK.
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