The current account hung in balance in April 2023, and the deficit in 10MFY23 is down to one-fourth and stood at $3.2 billion. The market was expecting a higher current account surplus as was the case last month with a surplus amounting to $750 million.
It’s not fair to establish a trend based on monthly variations caused in part by the difference in payment schedules. The communication of higher imports by SBP is one contributing factor towards the deficit reported in April. Another reason for the decline is potentially attributable to a reduction in current transfers and services exports, primarily in technology. It’s important to consider if this trend is an outcome of growing political instability.
The good news is that the current account for the first four months of the calendar year is cumulatively in surplus. However, the bad news is that the decline presently is attributable to import compression through a combination of administrative measures and demand manipulation. The overall economy is increasingly becoming dependent on informal sources of income leading to a decline in exports and remittances. The one-fourth decline in LSM growth is indicative of the fast-shrinking economic pie.
Imports are down by 38 percent in April 2023 to $3.7 billion and the decline is 23 percent in 10MFY23. And the average imports in the last four months stood at $3.8 billion – down by one third from the same period last year. Lately, the imports have further contracted, indicated by the PBS figures for April 2023 which would reflect in coming months for SBP. However, at the same time, there would be higher energy imports as summers loom, and some relaxation in import compression. Moreover, the government has entered the election mode which would have some bearing on imports.
The bigger dent is in imports other than food and petroleum which are down by half in the first four months of this calendar year versus the same period last year to average monthly imports of just below $2 billion. On the other hand, imports of food and petroleum are down by a mere 7 percent in the same period. This reflects the fact that selective administrative measures have a bigger role to play.
The rather dismal story is that exports are falling too. The toll is down by 23 percent in the first four months of this calendar year. The decline is partly due to lower prices, and that is the case for imports too. On the other hand, exports are down due to restrictions on imports and pass on effect of the energy inefficiencies to the exporting sector. Overall, the decline in exports is not a good omen. And it has little to do with global recession, as exports are rising for Bangladesh even today.
The goods trade balance has nonetheless improved in this fiscal year. The deficit is down by 31 percent to $22 billion in 10MFY23, and it’s down by 33 percent in the last month. The story of services balance is even better – it’s down by 91 percent to mere $400 million from $4.7 billion in 10MFY23. However, here the issue is of not letting the proceeds go out as services imports are down by 40 percent or $4 billion – partlydue to amounts being stuck in the pipeline in the form of dividends, airline payments, and rest due to decline in goods imports.
The services exports are up by 1 percent in 10MFY23. That is good. However, there is a decline of 20 percent in April as compared to the last month. The decline is mainly in technology exports. And similar is the case of other current transfers (charity, donation etc). This could be due to moving towards informal channels or people keeping money outside Pakistan – especially in case of ICT exports. We must wait for the next month before establishing any trend.
Remittances fell too. These are down by 13 percent in 10MFY23 and that is mainly due to growth in hundi and hawala as informal imports are rising as well. This can only end with bringing political stability and the normalization of imports.
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