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The current account deficit is reduced by 75% in February

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KARACHI:

Pakistan’s current account deficit – the difference between the country’s foreign spending and revenue – stood at a nominal $ 50 million in February 2021, according to the central bank.

The deficit narrowed after an increase in foreign income rather than a decrease in spending. Revenues increased with much-needed growth in export earnings while the inflow of workers’ remittances has already remained strong since June 2020.

The modest deficit paved the way for a boost to economic activity in the country. However, the worsening of the third wave of the Covid-19 pandemic and a rise in commodity prices, including food and energy, remained some of the immediate challenges.

The deficit was almost 75% lower in February 2021 compared to the same month last year. It fell 76% compared to last January, the State Bank of Pakistan (SBP) announced on Sunday.

February was the third consecutive month that recorded a deficit in the current account balance, which previously stood in surplus for five consecutive months (July-November) of the current fiscal year.

Cumulatively, in the first eight months (July-February) of FY21, the current account balance stood at a surplus of $ 881 million compared to a deficit of $ 2.74 billion in the same period last year.

Exports of goods rose nearly 9% to $ 2.16 billion in February 2021 compared to $ 1.99 billion in the same month last year. They improved 3% compared to the previous month of January 2021.

The increase in exports and remittances of workers encouraged industrialists to increase imports.

Previously, the government had managed to limit the current account deficit by making imports expensive to regulate the shaky economy. Liberalization of imports is a necessity to accelerate economic growth as both the economy and exports remain largely dependent on imported raw materials.

The central bank said as the economy recovered, the trade deficit was widening somewhat in the back of imports of capital goods and industrial materials as well as food, along with rising international commodity prices.

“However, the current account deficit in FY21 is expected to remain below 1% of GDP given the result so far, the continued strong prospects for remittances – which have remained over $ 2 billion for the last nine months – and the continued growth of exports, especially high value-added textiles, “the SBP said last Friday (March 19th).

Arif Habib Limited Head of Research Tahir Abbas said in a comment that in addition to increasing exports of goods, exports of services also increased significantly in February.

“This in part helped improve the current account deficit on a monthly basis while the contribution of technology exports also played a key role in improving service exports in the first eight months of FY21, cumulatively.”

He said, “During February 2021, services exports increased by 69%, which shows a significant improvement made by the country. During the eight months of FY21, the technology recorded exports of $ 1.29 billion, contributing 34% to total services exports and marking a 41% year-on-year increase. “

Total exports in the first eight months of FY21, however, fell 2.27% to $ 16.07 billion compared to $ 16.44 billion in the same period last year, according to the central bank.

JS Research analyst Ahmed Lakhani said the main reason for the contraction of the current account deficit was the reduction of primary income outflows by $ 158 million to $ 230 million in February compared to $ 388 million in January.

At the same time, there was a relief for the financial account, where there was no central bank repayment in February compared to $ 536 million in the previous month, he added.

Imports of goods rose 27% to $ 4.51 billion in February alone compared to $ 3.56 billion in the same month last year. Imports increased by almost 2% per month compared to the previous month of January.

Cumulatively during July-February FY21, imports increased almost 9% to $ 32.15 billion compared to $ 29.60 billion in the same period last year.

Meanwhile, remittances from workers rose 24% to $ 18.74 billion in the eight-month period from $ 15.10 billion in the corresponding period last year.

The strong increase in remittance inflows has remained the single largest source of foreign income for the country this fiscal year so far. The inflows have been facilitated by making international payments mainly for imports and repayment of foreign debts.

The continuing revival of international oil prices has been seen as risky for economic growth, as they carry the potential to increase Pakistan’s energy import bill and slightly widen the current account deficit. At the same time, the rise in the international oil price remains a positive development for the increase of workers’ remittances as the majority (about 70%) of Pakistani foreigners currently live in the oil exporting country in the Middle East.



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