KARACHI: Pakistan’s current acco­unt deficit (CAD) widened month-on-month by almost 59 per cent in December, but shrank 78pc when compared with December 2021.

The State Bank of Pakistan (SBP) data on Wednesday showed that the CAD dipped almost 60pc to $3.667 billion in the first half of the current fiscal year from $9.091bn in the same period of FY22.

The SBP data reveals the CAD in December was $400 million compared to $252m in November, an increase of 58.7pc. However, it contracted by 78pc from $1.857bn in December 2021.

The country’s CAD was $17.4bn for the entire FY22.

Current account deficit widens 58pc in December

Despite a steep contraction in the CAD, the PMLN-led coalition government is still in serious trouble as it has been struggling to arrange dollars to pay back foreign debts. The SBP’s foreign exchange reserves plunged to $4.3bn after repayment of $1.23bn last week and more outflows are expected.

The SBP Governor on Wednesday assured the business community of dollar inflows in the coming weeks. However, the business community was hostile, particularly about the opening of letters of credit (LCs) for imports and demanded immediate release of imported consignments since the price has doubled due to demurrages for delayed cargo.

The SBP data showed that exports during the first half of the current fiscal year declined to $14.2bn from $15.24bn in the same period of last year.

The imports substantially declined during the 6 months to $29.5bn compared to $36.09bn last year. However, the imports are still double of exports leaving a wide gap for the government to fill the hole with remittances. The overseas Pakistanis sent over $31bn in FY22 but this year it has started declining due to several reasons.

The data showed that the export of services slightly increased to $3.526bn in 1HFY23 compared to $3.432bn in the same period last year. The import of services significantly declined to $3.883bn compared to $5.571bn in the same period of last year.

The trade deficit is a real cause of concern for the government.

In FY22, the country’s total imports (goods and services) were $84.121bn while exports were $39.421bn leaving a trade deficit of $44.7bn. The country failed to meet this gap and ended with a current account deficit of $17.4bn.

Pakistan hopes to receive $10bn from the Geneva conference where more than three dozen countries including multilateral lending agencies pledged to provide $10bn for the rehabilitation of flood-affected Pakistanis. At the same time, Saudi Arabia announced an investment of $10bn for which a study will begin soon.

Market experts said that both these promises were project loans and it would take time to materialise and convince the lenders and investors to accept the projects when designed by Pakistani experts.

Published in Dawn, January 19th, 2023