Pakistan’s current account deficit narrowed to $881 million in the first eight months (Jul-Feb) of the current fiscal year from $2.741 billion in the same period of the previous year.
This is entirely due to a meteoric rise in remittances. In Jul-Feb FY21, overseas Pakistanis sent home $18.743 billion whereas in Jul-Feb FY20 they had remitted $15.103 billion.
Such a dapper rise in remittances is a welcome move. But the improvement in one source of forex inflows does not provide a sustainable basis for improvement in the current account over the medium term ie in the next three to five years.
The country can get rid of the current account deficit – and can even turn it into a surplus – if the remittances and export earnings both grow handsomely.
However, exports of goods and services are not growing, they are rather declining. In Jul-Feb FY21, Pakistan’s total exports of goods and services fetched $19.875 billion, down from $20.254 billion in Jul-Feb FY20, State Bank of Pakistan’s data reveals.
On the other hand, total import bill of goods and services stood at $37.296 billion in Jul-Feb FY21, far higher than $35.720 billion in Jul-Feb FY20. During the period under review, the gap between exports of goods and services and imports of goods and services expanded to $17.421 billion from $15.466 billion.
If this trend continues – and it is sure to continue amid ongoing economic recovery, it will soon start neutralizing the effect of thicker inflows of remittances on the current account.