KARACHI: Pakistan’s current account deficit in October widened sharply from the previous year, due to rising imports, data from the State Bank of Pakistan showed on Friday.
The deficit widened to $ 1.66 billion in October, from a surplus of $ 448 million a year ago, when the coronavirus pandemic took a heavy toll on the economy and imports all but came to a halt . The current account deficit widened by 46% month-on-month in October. The country posted a current account deficit of $ 1.13 billion the previous month.
The reason for the deficit was a 73.3% increase in imports year-on-year to $ 6.034 billion in October. However, merchandise exports also rose 24 percent to $ 2.448 billion, and remittances rose 10 percent to $ 2.518 billion.
The month-over-month increase in the current account gap was driven by a drop in exports and remittances, while the rise in imports of services also led to an increase in the current account deficit . Exports fell 7.1% and remittances fell 5.7% month-on-month in October.
Analysts said high international commodity prices and strong domestic activity kept the current account deficit high.
The country recorded a current account deficit of $ 5.1 billion in the first four months of the current fiscal year, compared to a surplus of $ 1.313 billion in the same period of fiscal 2021. L increased imports are also putting pressure on the rupee, which had depreciated nearly 11% against the dollar so far during the year. The devaluation of the rupee is also fueling imported inflation. The high current account deficit has become a major concern for the government as it weakens the country’s foreign exchange reserves. Foreign exchange reserves held by the State Bank of Pakistan fell from $ 381 million to $ 16.945 billion as of November 12.
Analysts expect the current account gap to widen to $ 11-13 billion and the total financing requirement to be $ 24 billion in the current fiscal year and “an accounting balancing would depend largely on the relaunch of the IMF program that would unlock other multinational flows, Eurobond issues, debt refinancing and international commercial bank loans “.
The SBP, in its latest monetary policy statement, expects the current account deficit for fiscal year 2022 to slightly exceed the previous forecast of 2-3% of GDP. The SBP recently took steps to reduce aggregate demand, which would help control imports and the current account deficit.
The central bank has increased the requirement for liquidity reserves maintained for a period of two weeks by regular banks from 5% to 6% and the minimum CRR to be maintained each day from 3% to 4%. It also took steps to curb unwanted currency outflows, imposed a 100 percent cash margin requirement on the import of certain products, and strict auto finance regulations. In a new move, the SBP raised interest rates to 8.75% from 7.25% amid heightened concerns about inflation as well as the balance of payments.