After five months of a current account surplus, Pakistan sees a deficit

• Imports grow as domestic economy starts recovering
• Analysts say monthly import bill would swell going forward 
• Analysts say current account unlikely to exceed 0.8% of GDP this FY20-21

KARACHI: After recording a current account surplus for five months, Pakistan witnessed a deficit of $662 million in December due to higher imports, the central bank data showed on Wednesday.

However, cumulatively, during the six months of the current fiscal year, the current account remained in surplus at $1.131 billion, compared to the deficit of $2.032 billion in the same period of last fiscal year.

“Exports and remittances continued to grow steadily in December 2020 compared to last year. Imports of some essential food items as well as growth-enhancing capital goods, oil and industrial raw materials also rose on the back of the domestic economic recovery,” the State Bank of Pakistan (SBP) said in a tweet.

The SBP stated that Pakistan’s imports rose 32% year-on-year to $5.019 billion in December. While the exports of the country saw an increase of 6.78% to reach $2.251 billion.

Read more: SBP links growth outcome to government's coronavirus response

The central bank said that the economic activity in the country was gaining momentum, which is evident from the increase in the large-scale manufacturing (LSM) index by 14.45% in November, while cumulatively, the index picked up 7.4% year-on-year in the five months of the current fiscal year.

The publication reported that the LSM index is likely to remain upbeat in the backdrop of accelerating manufacturing operations, improvement in aggregate demand and new investments.

The recent figures on the Temporary Economic Refinance Facility (TERF) also showed the investment and the economic activities recovered from a coronavirus-induced slump.

‘Exports likely to continue their upward march’

Analysts said monthly import bill would swell going forward but overall the current account was unlikely to exceed 0.8% of GDP this fiscal year.

Read more: Pakistan registers current account surplus for second straight month, says SBP

“Although monthly exports will likely continue their upward march in FY21E, imports are also likely to show increases going forward due to recent increase in international oil prices (Brent crude up by over 100% from its April 2020 low to $51/barrel),” said a report issued by BMA capital.

Apart from prices, petroleum import quantities are also recovering to their pre-COVID levels, creating additional burdens on the import bill. Monthly petroleum imports are up by over 40% from their April 2020 low and up by 37% year-on-year during five months of FY2021, it said.

Moreover, food imports are also likely to remain high in the near-term due to the continued import of wheat over the next two months.

More importantly, imports of machinery will also pick up pace towards the end of FY2021 as domestic activity improves and businesses import machinery, utilising the concessionary TERF facility given by the SBP, the report said.