Pakistan's current account deficit shrinks by 42% to $703m

• SBP cites $0.5b increase in exports; contraction in imports by $0.2b as main reasons.
• July-August FY23 current account deficit declines by $0.5b to $1.9b.
• Imports of goods stand at $5.75b in August, compared to $5.34b in July. 

KARACHI: The policies adoped to curtail the import ban have continued to bear fruit as Pakistan’s latest current account deficit — the gap between the country’s higher foreign expenditure and low income — shrank by a massive 42% month-on-month.

The current account deficit clocked in at $0.7 billion in August 2022 in comparison to a deficit of $1.2 billion in July, data released by the State Bank of Pakistan (SBP) showed.

"The current account deficit fell to $0.7 billion in August compared to $1.2 billion in July. The July-August FY23 current account deficit declines by $0.5 billion to $1.9 billion compared to same period [of] last year," the central bank said in a brief note released on its Twitter handle.

"This was mainly due to increase in exports by $0.5 billion and contraction in imports by $0.2 billion."

Analysts and financial pundits believe that the narrower deficit is the result of wide-ranging measures taken in recent months to moderate growth and contain imports, including tight monetary policy, fiscal consolidation and some temporary administrative measures.

On a year-on-year basis, the primary reason behind the decline in deficit was a 3% yearly decline in total imports. In addition to this, total exports and remittances increased by 17% and 2% year-on-year, respectively.

Data showed that imports of goods stood at $5.75 billion in August, compared to $5.34 billion in July. At the same time, imports of services stood at $936 million in July compared to $803 billion in July.

Previously, widening the current account balance being an important indicator of Pakistan's economy led to an outflow of US dollars, which had put additional pressure on the currency that has continued to struggle against the greenback.

Terming it a “relief”, Dr Khaqan Najeeb, a former adviser to the finance ministry, said authorities have taken some measures including monetary tightening and used informal quotas on opening of letter of credits to curtail the import bill to reduce pressure on the external account and maintain foreign exchange reserves.

“Of course, sharp adjustment of the Pakistani rupee has played its part in bringing down the current account deficit,” he said.

Najeeb, however, said to keep the current account lower going forward, export data has to be watched carefully to ensure that momentum is not broken due to shortfall in imported inputs and domestic shortfall in cotton due to floods in the country.