Current account deficit widens 236pc in May

KARACHI: Pakistan’s current account deficit widened 236 percent month-on-month in May due to downbeat remittances and exports, according to the central bank’s data.

The State Bank of Pakistan’s (SBP) data showed that current account deficit stood at $632 million in May compared to $188 million in April. Current account was in a surplus of $329 million in the same month a year earlier.

In May, exports of goods fell 7.4 percent to $2.1 billion due to partial lockdowns and extended Eid holidays. Imports of goods fell 0.32 percent to $4.9 billion. Remittances declined 10 percent to $2.4 billion, which is a usual trend post-Eid.

Analysts expect current account position to deteriorate further. “We expect further deterioration in the current account towards FY2021 close,” said Mustafa Mustansir, head of Research at Taurus Securities Limited. “The current account deficit for FY2021 would be around 0.3 - 0.5 percent of gross domestic product. Worsening trade deficit will be the biggest contributor to the current account deficit.”

Insight Securities said rising oil prices will put pressure on current account balance as oil imports constitute 25 percent of the total imports. Oil prices continue to remain a key wild card for Pakistan, it said. Imports of petroleum products remained under $10 billion in the previous two years. Given the rise in oil prices and expected rise in petroleum products demand, the oil import bill is estimated to reach over $13 billion.

Furthermore, higher cotton imports, higher raw material prices because of a surge in commodity prices, and spike in machinery imports amid subsidised finance and rebound in services deficit as a result of travel relaxation amid religious tourism would keep current account deficit elevated. The current account deficit is estimated to reach $8 billion or 3 percent of GDP in FY2022, it predicted. The likely continuation of a deferred oil supply deal worth $1.5 billion could provide some relief to the foreign exchange reserves Despite deterioration in the balance of payments position in May, the current account balance showed a surplus of $153 million in 11 months of the current fiscal year as against a deficit of $4.328 billion a year ago.

Exports rose 10 percent to $23.2 billion in July-May FY2021. Imports also increased 18 percent to $47.2 billion. Remittances rose 29 percent to $26.7 billion in July-May FY2021.

The delay in the sixth review of the International Monetary Fund’s 39-month loan program could also not bode well for the external current account. The State Bank of Pakistan revised down the FY2021 current account deficit projection to 0.0-1.0 percent of GDP from 0.5-1.5 percent forecasted earlier. At the same time, the SBP’s projections for import payments have increased by roughly 9 percent to $47-48 billion.