The current account is back in surplus after five months as the December 2023 balance of payment clocked in at a surplus of$397 million. The quarterly current account is also in surplus of $198 million for 2QFY24, having shown a deficit of a little over billion dollars in 1QFY24. This is only the fourth instance of a quarterly current account surplus in the last four years.
Domestic demand compression coupled with significantly lower commodity prices is primarily responsible for the respite in 1HFY24, where the CAD is down from $3.6 billion in the same period last year to $831 million – an improvement of $2.8 billion. The goods’ trade balance improved by nearly $5.4 billion in 1HFY24 – as both imports and exports changed for the better.
The goods’ imports went down 15 percent year-on-year resulting in savings of $4.3 billion, whereas goods’ exports went up 7 percent year-on-year – a gain of $1 billion in absolute terms. The biggest respite understandably came from the petroleum group, aided by both reduced demand and significantly reduced international crude and refined petroleum prices. Gross savings on petroleum import during 1HFY24 were $2.7 billion or 62 percent of total import savings year-on-year.
Food group came in next – with a net impact of $1.96 billion on current account balance. Food imports went down by $849 billion, led by a sharp drop in international palm oil prices that reduced palm oil imports 29 percent year-on-year. Wheat imports, as per the State Bank of Pakistan data, contributed $306 million to import savings – having gone down 69 percent year-on-year. This is at odds with the PBS data, which shows a discrepancy in excess of $200 million for 1HFY23.
Food exports went up by $1.1 billion year-on-year, at the highest ever half-yearly number – led by highest-ever rice exports that went up 53 percent, contributing 50 percent to the group export growth. Contribution from oil seeds has been the growth story of the year, showing a colossal 266 percent year-on-year growth, contributing more than a quarter to food group exports for 1HFY24.
Textile exports have been struggling to rebound, going down 9 percent year-on-year – with an impact of $88 million. The textile’s share in total exports at 53 percent is 10 percentage points lower from the same period last year, and lowest in memory. The net impact of textile group trade is restricted to negative170 million, as textile-related imports also contracted sharply, owing to raw cotton imports that were slashed to half during 1HFY24.“ Other exports“ went up from only $24 million last year to $418 million during 1HFY24, whereas saving in lieu of freight on exports totaled $211 million – both contributing significantly to the lower current account deficit for the period.
Much has been made of the uptick in “IT” exports as December 2023 raked in the highest monthly number of $303 million. In the larger picture, IT exports are up only in the single digits year-on-year, and the overall services trade balance is still painted in red, with a deficit of $1.4 billion. Services imports registered an increase of 26 percent year-on-year, largely at the back of transport and travel-related expenses – that contributed 70 percent to incremental services imports.
Workers’ remittances are still down year-on-year – having receded 7 percent with a loss of $1 billion in absolute terms. A multitude of factors are at play on the remittance front, with informal sending channels curbed and the oil-rich countries facing headwinds due to sharp reductions in oil prices. Going forward, much will depend on the oil price trajectory, and the escalation in the Middle East may throw the spanner in the works.
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