KARACHI: “Pakistan’s external account improved considerably during July-March FY24 as the current account deficit (CAD) narrowed down significantly by 87.5 per cent to $0.5 billion compared to $4.1bn last year,” reported the Economic Survey 2023-24 on Tuesday.

The financial account also witnessed net inflows of $4.2bn, mainly augmented by inflows from friendly countries and official inflows, in sharp contrast to net outflows of $1.1bn during July-March FY23, it said.

The improved inflows in July-March materialised amid successful implementation of reforms agreed upon as part of the Stand-By Arrangement (SBA) with the IMF.

“The increase in CAD and financial support from bilateral and multilateral development partners resulted in the building of foreign reserves. Specifically, reserves increased to $8bn by the end of March 2024 from $4.4bn at the end of FY2023,” said the survey.

The current account recorded a deficit of $0.5bn ($500 million) during July-March FY 2024, against a deficit of $4.1bn during the same period last year.

“The predominant factor behind this improvement in CAD was the 25.2 per cent decrease in merchandise trade deficit, which resulted from a substantial decline in import payments to $38.8bn in July-March FY2024 from $42.1bn during the same period last year,” said the survey.

The primary income account posted a deficit of $5.6bn during July-March FY 2024, compared to $4bn recorded in the same period last year. The rise in deficit was mainly driven by higher interest payments and relatively higher profits and dividend repatriation.

According to the Economic Survey, there has been a substantial increase in interest payments on external debt and liabilities, which rose by approximately $0.9bn ($900m) to $ 4.2bn during July-March FY2024, compared to $3.3bn during the same period last year.

“The current account deficit narrowed substantially by 87.5 percent to $508m during July-March FY2024 from $4.1bn recorded during the corresponding period last year,” said the Survey.

Currency confidence

According to the Economic Survey, the better performance of the external sector, coupled with the accumulation of foreign reserves, has instilled renewed confidence in the Pakistani rupee.

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“The average monthly rate of the rupee against the US dollar appreciated by 2.8 per cent during July-March FY 2024,” said the report.

The exchange rate has been a prime subject for the government and the State Bank. The rupee depreciated to as low as 306 to the dollar in June last year, but the IMF’s $3bn Standby Arrangement helped the country avoid default.

“Additionally, the PKR (Pakistani rupee) appreciated by about three per cent till March 2024 compared to end June 2023,” said the report.

Remittances

During July-March FY 2024, remittances were recorded at $21bn, as against $20.8bn last year. However, it is important to note a sharp increase in interest payments on external debt and the repatriation of profits and dividends, said the Survey.

“Supported by the IMF’s SBA and loans from other creditors, the financial account experienced a net inflow of $4.2bn during the period,” it added. Consequently, gross foreign exchange reserves swelled to $8bn by March 2024, marking a significant increase from $4.4bn recorded in June last year, it added.

Published in Dawn, June 12th, 2024