In July, Pakistan recorded a current account deficit of $0.81 billion, marking a 35.8 percent decrease compared to the previous year. Nevertheless, it was the first time in five months that the current account showed a deficit.
The current account reflects a nation’s foreign exchange earnings from exports and remittances, as well as its losses from imports and loan repayments. A deficit occurs when a country’s outflows surpass its inflows.
Data released by the State Bank of Pakistan (SBP) indicated that the country’s total imports of goods amounted to $2.1 billion in July, a 4.55 percent reduction compared to the same month in the previous year. Concurrently, exports stood at $4.2 billion, a notable decline of 23.51 percent from July 2022.
Furthermore, remittances amounted to $2 billion, experiencing a sharp decline of 99.92 percent compared to the same period last year. Overall, the current account deficit exhibited a 35.8 percent decrease from the figure of $1.26 billion recorded in July FY23. In the preceding month, the current account had shown a surplus of $500 million.
Pakistan, grappling with a persistent current account deficit issue, had managed to maintain a surplus for the previous four months. This was primarily due to import restrictions imposed last year, which were introduced after the country’s foreign exchange reserves reached critically low levels.
The International Monetary Fund (IMF) had also noted in an earlier staff report that the current account deficit had substantially narrowed in the first 11 months of FY23, primarily because of a significant reduction in imports, driven by both administrative restrictions and limited foreign exchange availability.
However, these import constraints had led to material shortages across various industries and raised concerns about declining exports. According to data published by the Pakistan Bureau of Statistics (PBS), large-scale manufacturing had declined by 10.26 percent in the previous fiscal year.
In recent developments, the government has lifted some of these import restrictions, as noted by analysts. Consequently, it is anticipated that the current account deficit may widen in the forthcoming months as a result of increased imports.