Current account deficit swells 179pc YoY in March

KARACHI: Current account deficit shot up 179 percent to $1.0 in March, almost double the amount in the same month last year, data from the central bank showed on Saturday, as the soaring cost of energy and commodities imports widens the shortfall.

The deficit stood at $369 million in March 2021. The deficit increased by 98 percent month-on-month. That compared with $519 million in the previous month.

The current account deficit reached $13.2 billion in first nine months of the current fiscal year, compared with a deficit of $275 million in the same period last year.

Analysts say pressure on the current account is mainly due to rising commodity prices, including for oil and food, and a short-term solution could be to reduce domestic demand through fiscal and monetary policy.

The balance of payments numbers come at the time when the new finance minister reached Washington to hold talks with the International Monetary Fund (IMF) to revive the stalled $6 billion bailout programme amid Fund’s concerns over the $1.5 billion fuel and subsidy package announced by the former prime minister Imran Khan last month.

Fahad Rauf, the head of research at Ismail Iqbal Securities in a client note said the country’s deficit has increased after dropping sharply in February, albeit in-line with expectations.

“The increase has mainly come from higher trade deficit, while this was partially offset by higher remittances, Rauf said. “In March, Pakistan has achieved two feats i.e. highest ever monthly goods export of $3 billion and highest ever IT & and related services exports of $259 million.”

The State Bank of Pakistan (SBP) highlighted that the current account deficit was bounded in March as strong exports and record remittances counterbalanced the rise in oil, food and vaccine imports. “Despite high global commodity prices, the turnaround in the current account continues, with a deficit of $1bn in March, $500 million lower than the average during FY22. Moreover, the non-oil balance remained in surplus for the 2nd consecutive month.”

Analysts said the hefty current account deficit is signaling further pressure on the rupee which has weakened by 15.62 percent against the dollar so far this fiscal year.

The current account gap is financed by the central bank’s forex reserves, but these have waned to $10.8 billion this year with enough to pay less than two months imports as trade gap and foreign debt payments continued to surge.

The IMF raised Pakistan’s current account deficit forecast for FY2022 to 5.3 percent of gross domestic product versus 3.1 percent earlier, according to its latest World Economic Outlook. The elevated CAD is increasing external sustainability risks, said the World Bank biannual report titled “Pakistan Development Update”.

Largely reflecting the surge in imports, the World Bank expects CAD to widen to 4.4 percent of GDP in FY2022.