KARACHI: Pakistan’s current account deficit (CAD) for July 2022 narrowed by 45 percent on month-on-month basis to $1.2 billion as compared to CAD of $2.2 billion in June this year.
The moderation in CAD was due to 26 percent on MoM fall in imports (goods and services) to $6.2 billion.
On a year-on-year basis, CAD jumped by 42 percent in July 2022 from $851 million in the corresponding period last year.
As per the State Bank of Pakistan’s figures, exports during July also contracted by 25 percent on MoM to $2.8 billion largely due to less working days during Eid holidays and slower global demand.
Overall trade deficit during the month clocked in at $3.3 billion compared to $4.6 billion in the preceding month. On the other hand, remittances during the month under review clocked in at $2.5 billion, declining by 8 percent on MoM from June with major slowdown coming from UAE and Saudi Arabia.
Meanwhile, FDI during July 2022 clocked in at $59 million, down 78 percent on MoM compared to $271 million in June.
“The current account deficit shrank to $1.2 billion in July 2022 from $2.2 billion in June this year, largely reflecting a sharp decline in energy imports and a continued moderation in other imports,” SBP said.
“With FY22 current account deficit of $17.3 billion taking its toll on the external front and depleting reserves at an alarmingly fast pace, the government has taken steps to reduce aggregate demand in the economy to avert a similar situation in FY23,” Fayyaz Hussain an analyst at Sherman Securities said.
“The SBP is eyeing CAD to clock in at $10 billion in FY23 expecting a sharp reduction in imports. However, we expect FY23 CAD to overshoot SBP’s target to reach $15 billion. Although, we expect imports to fall during FY23, we believe there will also be a sizeable reduction in exports due to rising input costs, high interest rate, and tight fiscal policy which will offset the impact from reduction in imports. Meanwhile, we expect remittance growth to remain robust throughout FY23 owing to rising international crude oil prices which will support Gulf-based countries who host most of the expatriates from Pakistan,” he said.
In terms of quantity imported, the government purchased 3.3 million MT of crude oil and petroleum products during June (against 12-month average of 2.3 million MT) when prices were at their peak, taking the monthly bill to $2.9 billion. In July 2022, as per figures released by the SBP, the government again booked petroleum import bill of $2.4 billion whereas in terms of quantity, the government imported 1.4 million MT of crude oil and petroleum products (significantly below the 12-month average) at a relatively lower price compared to the preceding month.
The government’s decision to import large quantity of fuel products in June 2022 (around two-months worth of fuel) seems to have been an effort to book a large trade deficit in FY22 and insulate the FY23 trade and current account deficit numbers.
However, the move had ripple effects on the currency markets where rupee dwindled to record lows and local storage capacities of crude refineries have been tested who have warned of closures due to low product offtake amid falling demand. Rising prices at the pump reduced POL sales during July by 26 percent on MoM. Although the decline in July POL sales can be attributed to Eid holidays and monsoon season, if the declining trend sustains during the first half of FY23, it will significantly curtail petroleum imports.
On the other hand, non-oil imports fell for second consecutive month in July on a YoY basis owing to decline in global commodity prices, government’s ban on import of selected non-essential items and reduction in overall quantity imported. The government plans to curtail imports (both petroleum and nonfuel) for the remainder of the FY23 by pursuing tight fiscal policies and keeping aggregate demand in check, he said.
Sana Tawfik at Arif Habib Limited said that the current account deficit on MoM basis was significantly down by 45 percent aided by a 27 percent decline in balance of trade. Workers’ remittances too posted a decline on MoM basis, down 9 percent.
To recall, the SBP had mentioned in its latest MPS that lower (MoM) imports on account of a decline in energy imports as well as non-energy imports, improved the current account position in July 2022. Albeit, exports too showed a decline on MoM basis amid Eid holidays and “emerging signs of slower global demand.”
Copyright Business Recorder, 2022
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