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KARACHI: Pakistan’s monthly current account deficit (CAD) hit an all-time high of $2.55 billion in January against $219m in the same month last year mainly driven by surging imports amid higher commodity prices.
In December 2021, the CAD was $1.9bn.
However, the increasing imports along with a rapid increase in the oil prices almost destroyed the struggle to bring the CAD from the highest-ever level of over $20bn in 2018. The data shows the imports of petroleum products were the main item that increased the bill but the services imports were also increased by 39pc to $6.174bn compared to $4.426bn in the same period of last year.
The balance of payments (BOP) data issued by the State Bank of Pakistan (SBP) on Thursday showed that the country’s CAD swelled to $11.6bn during the first seven months of 2021-22 against a surplus of $1.028bn in 7MFY21.
Though the government took a number of measures to cut the import bill but it failed. The trade deficit in goods and services surged to $27.35bn in 7MFY22 as against $14.81bn in the same period of last year.
The CAD has been widening despite the much better performance of the export sector while remittances also remained intact. The total exports increased by 25pc during 7MFY22 over the same period last year.
The export of goods and services during July-Jan FY22 were $21.66bn compared to $17.235bn, an increase of $4.432bn or 25 per cent.
The imports of goods and services increased 53pc to $49.017bn in 7MFY22 against $32.053bn in the same period of last year.
The government is desperate with the increasing size of the current account deficit and found compelled to borrow more to meet the external account expenses. While the foreign investment in the country remained poor for last many years, it could not increase the exports to any sizeable amount to counter the huge trade gap.
The over $27bn trade gap requires an almost the entire amount of remittances being sent by the overseas Pakistanis but the debt services still require around $13-$15bn this year. The government is hopeful to receive about $30bn through remittances by the end of this fiscal FY22 while it has already received $18bn in 7 months.
Analysts believe that the country could receive the targeted remittances but the soaring current account deficit is haunting for it.
Reserves down
The foreign exchange reserves of State Bank of Pakistan (SBP) decreased by $289 million to $16,806.5 million in the week ending Feb 18, compared to $17,095.8 in the previous week, the central bank said on Thursday.
The country’s overall reserves also dipped to $23.22bn during the week from $23.49bn while commercial banks’ forex holdings improved to $6.41bn from $6.39bn.
$4bn paid in debt servicing
Pakistan has paid more than double in the 2nd quarter of the current fiscal as external debt servicing compared to the first quarter FY22, reported State Bank on Thursday.
The country paid $4.074 billion as debt services during Oct-Dec FY22 against $1.659bn in the first quarter of the same period.
In the beginning of the current fiscal the government had said the country would need about $20bn for the debt servicing. Under the huge debt burden, rising imports bill and increasing current account deficit, the debt servicing could be a serious problem for the government already under clutch of IMF.
Savers withdraw funds
The National Saving Scheme is no more attractive for the government as it has failed to mobilize liquidity through the schemes.
The latest half yearly data- July-Dec FY22 shows the net outflow reached Rs104.3bn compared to an outflow of Rs9.9bn in the same period of last year.
However, the government introduced a cut during the current month in the profit rates of the NSS which was inflicting for the stakeholder particularly when inflation is high and policy interest rate has also been increased last month.
The government has barred financial institutions and corporate sector to invest in the NSS which resulted into investment while the institutions have started withdraw their investment also.
On Feb 4, the rates on entire schemes were revised. The rates of Defence Saving Certificates (DSCs), Bahbood Savings Certificates (BSCs), Pensioners’ Benefit Accounts (PBAs), Shuhada’s Family Welfare Accounts (SFWAs), Regular Income Certificates (RICs), Short-Term Savings Certificates (STSCs), Special Savings Certificates (SSCs), Special Savings Accounts (SSAs), and Savings Accounts were revised downwards.
The rate of return on Regular Income Certificates (RICs) was cut by 48 basis points to 10.32 per cent; Behbood Savings Certificates’ (BSC) rate was cut by 72 basis points to 12.24 per cent, and the profit on Special Savings Certificates (SSC) was reduced by 40 basis points to 10 per cent.
Published in Dawn, February 25th, 2022
