In May, the country witnessed a significant turnaround in its economic situation, posting a surplus of $255 million compared to a deficit of $1.506 billion in the same month last year. This drastic improvement has played a major role in reducing the current account deficit (CAD) throughout the fiscal year.
A recent update from the State Bank of Pakistan (SBP) late on Monday revealed that the CAD has narrowed by a remarkable 80.58%, amounting to just $2.943 billion during July to May of FY23, as opposed to $15.16 billion during the same period in the previous fiscal year.
Although the reduction in CAD is a positive development, concerns about a potential sovereign default continue to loom as the government struggles to bolster its depleting foreign exchange reserves amidst a sharp decline in exports and remittances.
The significant reduction in CAD has come at a considerable cost to the economy, as imports were curtailed in an effort to reduce the trade deficit. However, this led to a slowdown in industrial production due to shortages of raw materials.
As a result of the SBP’s restrictions on imports, the country experienced a decline in the import of goods, which amounted to $48.9 billion in the first 11 months of FY23, compared to $64.339 billion during the corresponding period last year. Unfortunately, this drastic reduction had a severe impact on economic growth, which fell from 6.1% in FY22 to a mere 0.29% this year.
The SBP’s data, released on Monday, also indicated that the surplus in May was higher than April’s $78 million, showcasing a positive trend in the second half of the current fiscal year.
Despite the lower CAD over the 11-month period, the situation worsened due to insufficient inflows of dollars. The country currently holds reserves of approximately $4 billion, which were primarily borrowed.
Complicating matters further is the impending deadline for the IMF loan, set to expire on June 30. However, the IMF has not clarified whether the remaining amount of the