The current account deficit (CAD) remained virtually steady at $1.93 billion in December-21, compared to $1.89 billion in November, according to the State Bank of Pakistan. In July-December FY22, CAD totaled $9.09 billion, owing to a major terms of trade shock amid a continuing economic recovery.
Exports of goods and services in the first half of the financial year 2021-22 were higher than in the same time last year, rising to $15.24 billion and $3.4 billion, respectively, from $11.84 billion and $2.8 billion in the same period last year, according to figures issued by the Central Bank.
However, due to increasing imports, the goods trade balance increased to $21.2 billion in the period under review, while the services trade balance increased to $1.8 billion. A current account deficit is expected in a country like Pakistan, where saving is low and GDP is recovering. It is critical that it is not excessively huge, and that the government can fund it without depleting its foreign exchange reserves.
Pakistan’s new market-based currency rate system, which went into effect in June 2019, would assist to guarantee that the current account does not become unsustainable as it has in the past. Previously, this method did not exist. Instead, the currency rate was kept artificially low, causing the current account deficit to rise, valuable foreign exchange reserves to be drained to pay for imports, and the government to be obliged to seek assistance from the International Monetary Fund (IMF).
Pakistan’s foreign exchange reserves surpassed $18 billion in December, reaching a five-year high. During the calendar year 2021, they increased by more than $5 billion. In contrast, they decreased by $2 billion and $6.4 billion in FY17 and FY18, respectively.
According to the statistics, the CAD without formal transfers increased to $9.26 billion, up from $1.11 billion in the same time previous year. Similarly, worker remittances increased to $15.8 billion in July-December this year, up from $14.2 billion in the same period last year. a
The current account balance recorded a deficit of 5.7 percent of GDP in July-December FY22, compared to a surplus of 0.9 percent in the same period the previous year.
