Pakistan’s current account balance shows $654m surplus in March, largest since 2015

KARACHI: Pakistan recorded its first current account surplus in two and a half years in March, helped by government curbs in imports, central bank data showed on Wednesday.

The country last saw a current account surplus in November 2020, when pandemic restrictions were in place. The current account balance showed a huge surplus of $654 million, contrasting with a $36 million deficit in the previous month, State Bank of Pakistan (SBP) data showed.

March's current account surplus is the largest since February 2015, though low economic activity, job losses, and industrial unit closures are the price of the current surplus. "The surplus was expected," said analyst Fahad Rauf at Ismail Iqbal Securities. "The main contributor, with a monthly rise of more than $500 million, is remittances."

The amount of money sent home by Pakistani citizens working abroad increased 27 percent to $2.5 billion in March from $2 billion in the previous month. The month of Ramazan, a holy month, and the festival of Eid, during which Pakistani expatriates send more money home, as well as the depreciation of the rupee all played a part in the surge in remittances. After the difference between the official and unofficial rates of the local currency was erased, the trend in remittances started to improve.

However, remittances fell 11 percent to $20.5 billion in nine months (July-March) of the current fiscal year. “On the other hand, the trade deficit is being managed through strict restrictions on imports. Once the imports are allowed, we can have a fair idea of how much of the import decline is on account of demand destruction and what part is due to administrative actions,” Rauf said.

The nation's current account deficit for the first nine months (July through March) of the current fiscal year was $3.4 billion, around 74 percent lower than the $13 billion deficit for the same period last year.

Reduced pressure on the external current account has been made possible by a weaker currency, import limitations, and limits on the availability of foreign exchange, as well as fiscal tightening and higher interest rates.

Imports decreased by 35 percent in March to $3.99 billion from $6.114 billion in the same month last year. Imports fell 21 percent to $41.494 billion in July-March FY2023. March exports totaled $2.427 billion, 21 percent down from a year earlier. Exports fell 11 percent to $21 billion in July-March FY2023. The reduction in exports is primarily caused by a drop in commodity prices and a downturn in global demand. However, exports saw a 10 percent increase month-on-month in March. The central bank has made steps to motivate exporters to provide export receipts timely.

Although the current account balance has improved, the overall balance of payments situation is still precarious, with $4 billion in foreign exchange reserves—enough to cover one month's worth of imports—which are still at low levels.

The latest current account figures are released as the nation waits for the International Monetary Fund (IMF) to renew a $6.5 billion bailout package. The IMF wants $6 billion in commitments from friendly countries and multilateral and bilateral lenders to fill the shortfall in external funding. The United Arab Emirates has committed $1 billion to Pakistan in financial support after Saudi Arabia committed $2 billion. However, the global lender requires Pakistan further funding assurances to secure a bailout.

“We expect import controls to be removed gradually and expect no abrupt change in policy,” said Yousuf M. Farooq, analyst at Topline Securities.

“We expect the current account balance to remain muted for the remainder of the year, and estimate FY23 current account deficit of $3.5 billion,” he added. The SBP expects that FY23’s current account deficit will be below $6 billion.

However, Pakistan’s main issue is the external debt repayment crisis, according to Farooq. “We believe that Pakistan has to talk to its lenders to push out maturities of its debt. We believe that discussions on debt restructuring/reprofiling will be done after elections by a new federal government along with a new IMF programme.”

The SBP in its last analyst briefing stated that the total funding requirement till the end of June 2023 was $4.4 billion and the central bank expected that $2.3 billion would be rolled over while $2 billion would be arranged from other sources and repaid.