KARACHI: Pakistan’s current account deficit widened 236% month-on-month in May due to lower remittances and exports, according to central bank data.
Data from the State Bank of Pakistan (SBP) showed the current account deficit to stand at $ 632 million in May from $ 188 million in April. The current account posted a surplus of $ 329 million in the same month a year earlier.
In May, merchandise exports fell 7.4% to $ 2.1 billion due to partial lockdowns and extended Eid holidays. Merchandise imports fell 0.32 percent to $ 4.9 billion. Remittances fell 10% to $ 2.4 billion, which is a usual trend after Eid.
Analysts expect the current account position to deteriorate further. “We expect the current account to deteriorate further towards the end of fiscal 2021,” said Mustafa Mustansir, head of research at Taurus Securities Limited. “The current account deficit for fiscal year 2021 would be around 0.3 to 0.5% of gross domestic product. The widening trade deficit will be the main contributor to the current account deficit. “
Insight Securities said rising oil prices would put pressure on the current account, with oil imports constituting 25 percent of total imports. Oil prices remain a key wildcard for Pakistan, he said. Imports of petroleum products have remained below $ 10 billion in the previous two years. Taking into account the rise in oil prices and the expected rise in demand for petroleum products, the bill for petroleum imports is estimated at over $ 13 billion.
In addition, higher cotton imports, higher raw material prices due to soaring raw material prices and increased machinery imports against a backdrop of subsidized financing and a rebound in the services deficit due to easing travel in religious tourism would keep the current account deficit high. The current account deficit is expected to reach $ 8 billion or 3% of GDP in fiscal 2022, he predicted. The likely continuation of a deferred oil supply deal worth $ 1.5 billion could provide some relief to foreign exchange reserves Despite the deterioration in the balance of payments situation in May, the balance of Current account posted a surplus of $ 153 million in 11 months of the current fiscal year compared to a deficit of $ 4.328 billion a year ago.
Exports rose 10% to $ 23.2 billion in July-May FY2021. Imports also rose 18% to $ 47.2 billion. Remittances rose 29% to $ 26.7 billion in July-May for fiscal 2021.
The postponement of the sixth review of the International Monetary Fund’s 39-month loan program does not bode well for the external current account either. The State Bank of Pakistan has revised downward the current account deficit projection for FY2021 to 0.0-1.0% of GDP, from 0.5-1.5% previously forecast. At the same time, the SBP’s projections for import payments increased by around 9% to $ 47 billion to $ 48 billion.