The current account posted a surprise surplus of $654 million in Mar-23 – highest monthly surplus in eight years. But a cause for celebration this occasion may not be, as this surplus is a consequence of haphazard and ad-hoc import restrictions that have almost choked the economy. The current account deficit is down 74 percent to $3.4 billion in 9MFY23 with imports down 21 percent, exports dipping 11 percent and remittances plunging 11 percent down.

The overall balance of payment was in surplus too in March, as capital and financial accounts were almost in balance. This situation may persist till the default fears die. The idea of this government is to let the economy float at a default setting, as long as possible.

The key has been curbing imports. The monthly import bill stood at $3.9 billion for the last three months. That is a new (ab)normal. It can go down further if the country runs out of reserves – and in this case, there would be fuel and electricity shortages, along with shortages in almost every industry. And if the financing gap is arranged and the country steers out of this crisis, imports could normalize slowly over the next 12-18 months. There is no short-term fix from here.

The import bill barring food and petroleum averaged at $1.9 billion in the last three months. There is not any room to further compress these. The next round of curbs could be on petroleum and food. And not all the other imports are recorded in the formal account. Lately, the conduit of hundi hawala is being used for some so-called non-essential imports. That practice is likely to grow in coming months. At the same time, petroleum products being informally imported from Iran may further rise.

The shadows of informal economy are likely to remain overcast till the macro picture improves. And that would have an impact on formal remittances. These are down by 11 percent in 9MFY23 even though the people going abroad for work has increased significantly. In March, one prime reason for the surplus is that the remittances were high – these were up by 27 percent from the previous month; but down by 11 percent as compared to the same month last year. The monthly increase is due to seasonal factors, and that will be normalized in the months to come. Overall formal remittances may fall with the possible increase in informality.

Then the imports in services fell as well – down by 40 percent to $5.7 billion in 9MFY23. There are two reasons for this steep decline. One is lower goods imports which are down by 21 percent and the services import to be declined by same amount for freight and other cargo charges. Rest is low due to decline in the payment to service providers -such as airline providers. And going forward the demand for air ticketing and all will remain low. This is evident by lower demand in Hajj this year.

Exports haven’t helped at all, down by 11 percent in 9MFY23. One reason for the decline is lower demand by buyers due to recession in the developed world. However, that is not the main reason, as textile exports are down by a mere 4 percent while all other exports are down by 20 percent. This is partially due to import restrictions. The textile sector has remained shielded from it to a great extent as they are too big and influential—their imports used for the purpose of exports have cleared while remaining sectors—with not nearly as much clout at textile—continue to suffer.

This suffering will go on. The import compression policy would keep the current account at bay from red; but at the cost of every other thing in red ranging from growth to employment, and shortages which will keep inflation elevated.