Islamabad: A huge sigh of relief as the current account deficit of Pakistan (CAD) dropped by nearly 60% in the first half (July – December) of the current fiscal year (FY23).
According to the State Bank of Pakistan (SBP), during the period under review, the current account recorded a deficit of $3.667 billion in FY23 compared to $9.09 billion in FY22, showing a decline of $5.42 billion.
— SBP (@StateBank_Pak) January 18, 2023
Market analysts have said that the federal government’s measures to curtail the rising import have put a positive impact as the current account is continually presenting an improved picture.
Earlier this month, the Pakistan Bureau of Statistics (PBS) reported that a massive cut was observed in imports in line with the steps taken by the incumbent government to ease the pressure on import bills during the first six months of FY23. Imports amounted to $31.382 billion during the period, compared to the $40.463 billion that had been recorded during the same period last year.
On a month-on-month basis, however, the current account deficit rose slightly in December to $0.4 billion compared to $0.25 billion recorded in November.
The sharp trend of decline in the current account deficit has been observed despite a fall in remittances inflows, which declined by 11.1% in the first half of FY23 to amount to $14.052 billion compared to $15.807 billion recorded in the same period last year.
Experts believe that the sharp decline in remittance inflows is because overseas Pakistanis have opted for unofficial channels as they are offering a much higher exchange rate.
Currently, the interbank PKR/USD rate is Rs228.91. However, the open market rate is around Rs40 higher than the interbank. Resultantly, workers overseas go far unofficial channels like hawala and hundi to send back dollars.
It is important to note that Pakistan heavily depends on the influx of remittances to meet its foreign exchange needs and to reduce the current account deficit because exports hardly cover the high level of imports.
According to the latest reports, Pakistan’s SBP-held forex reserves have fallen to $4.3 billion, which is not even enough to cover one month’s export.