According to official data and analysts, Pakistan’s current account deficit (CAD) shrank by 86 percent to $74 million in February, reaching a two-year low as a result of a recent rise in remittances, import restrictions, and currency depreciation.
Due to a severe lack of dollar liquidity, the government set limits to process the import bill and only permitted a small number of imports of commodities to stop a significant outflow of dollars from the nation.
Pakistan had a current account deficit of $74 million last month, down 86% from a deficit of $519 million in the same month last year, according to the State Bank of Pakistan.
Pakistan’s deficit dropped to $3.9 billion in the eighth month of the current fiscal year from $12.1 billion in the same month the previous year, a 68 percent decline.
According to Tahir Abbas, head of research at Arif Habib Limited, “the $74 million CAD in February 2023 is the lowest monthly deficit since February 2021 due to a spike [by 4.9 percent] in the remittance inflows that strengthened the external position of the country,” Arab News reported on Tuesday.
He went on to say, “This is because of the persistent impact of import limits through robust administrative measures and currency depreciation. In addition, “the slowing economy is also a major factor” in the deficit reduction.
According to reports, Pakistani banks are reluctant to create letters of credit (LCs) for the import of commodities. This is probably because the government has implemented stringent controls to stop a substantial outflow of dollars.
According to the Pakistan Bureau of Statistics (PBS), Pakistan’s import bill for February was $4.03 billion, down 17.25 percent from January’s $4.87 billion and 31.08 percent from February of last year’s $5.85 billion.
The overall value of Pakistan’s imports from July through February 2022–23 (FY23) was $40.12 billion, down 23.51 percent from the $52.45 billion during the same time the prior year. Exports fell by 9.21 percent from $20.57 billion at the same time last year, according to PBS data, totaling $18.67 billion.
Due to weak demand, imports of mogas and high-speed diesel (HSD) fell by 28 and 33 percent YoY, respectively, and oil imports saw a dip of 21 percent YoY in February.
Pakistani analysts claimed that the decline in imports was due to both the slowing of the country’s economy, which was previously anticipated to expand by about 1% during the current fiscal year (FY23) and the depreciation of the national currency, which fell by more than 5% against the dollar in the previous month alone.
The drop in imports that reduced the current account deficit is also attributed to the depreciation of the Pakistani rupee. The Pakistani rupee slightly strengthened against the dollar on Tuesday, finishing at Rs283.92 vs Rs284.03 the previous day. The better current account deficit report provided some support for the stock that concluded Tuesday’s trading session down.
Ahsan Mehanti, CEO of Arif Habib Company, stated that the positive data of a $74 million current account deficit in February 2023 that decreased by 68 percent on a month-over-month basis was the reason for the mid-session support. The International Monetary Fund staff-level agreement delays, business closures due to currency concerns, and political instability, however, “played a catalytic role in the negative close.”
After a five-month hiatus, negotiations between the IMF and authorities from cash-strapped Pakistan have not yet resulted in the completion of the ninth review of a $7 billion bailout programme.
The review’s conclusion would allow for the release of $1.2 billion from the fund, increasing the nation’s current $4.3 billion in foreign exchange reserves.