EDITORIAL: The current account registered surplus for March 2024 of 619 million dollars against 537 million dollars in March last year on the back of higher remittance inflows through official channels during Ramazan/Eid and a lower trade deficit.
While critics may point out that higher remittance inflows may be sourced to the persistently high inflation rate that necessitates greater inflows to sustain the quality of life of the families of Pakistani workers abroad yet the fact that there was a rise must be appreciated as it may herald the end of overseas Pakistanis’ preference for remitting through the unofficial and illegal hundi/hawala system evident between October 2022 and June 2023 when the policy was to artificially control the rupee-dollar parity, thereby giving rise to a differential between the official and the unofficial rate of over 10 rupees to the dollar.
A lower current account deficit has traditionally been achieved due to a lower trade deficit attributable to import restrictions. These restrictions are opposed by multilaterals, including the International Monetary Fund (IMF), on the ground that it distorts the market. In the case of Pakistan these restrictions also impact negatively on productivity as raw material imports slow down at best and at worst cease entirely. Today some foreign exchange restrictions remain in place (including those relating to fuel imports as well as repatriation of profits to foreign companies), a fact noted in the first review documents on the Stand-By Arrangement reached last year wherein the Fund Staff noted that “some complaints persist about insufficient access to foreign exchange via banks amongst business people and foreign investors.” It is important to note that the caretaker government pledged that all foreign exchange restrictions would end by the end of the ongoing IMF programme; so noted in the first review documents: “the current account deficit during July-November 2023 narrowed down to US$1.2 billion against US$3.3 billion in the corresponding period in the FY23 despite the withdrawal of import prioritisation instructions in June.”
A current account, however, has three other critical components that need to be highlighted. First, direct investment registered negative 980 million dollars between July-March 2024 against negative 267 million dollars in the comparable period of the year before. And while the stakeholders are focused entirely on luring foreign investment from friendly countries and have received heartening pledges to that effect, yet the current account balance sheet will only reflect it once the inflows have been realised. Second, portfolio investment in spite of a visible bullish stock market declined from 1013 million dollars July-March 2023 to negative 168 million dollars in the same period this year. That too does not auger well for investment inflows based on the prevalent economic situation the country is facing though the same logic may not apply to inflows from friendly countries. And last but not least, net incurrence of liabilities has increased from negative 946 million dollars July-March fiscal year 2023 to an alarming positive 3,197 million dollars in the comparable period of 2024.
While the current account surplus does indicate improvement, yet ideally, it should be entirely due to rising desired foreign exchange inflows; notably, remittances and trade rather than from an increase in liabilities.
Copyright Business Recorder, 2024
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