The current account is in surplus ($491 mn in April 2024) for yet another month. The 10MFY24 deficit is a meager $202 million – the lowest deficit since 2011. The deficit is $3.7 billion less than what it was in the same period last year.

The fall in the overall trade deficit is more – down by $4.9 billion to $17.7 billion in 10MFY24– due to both higher exports and lower imports. The benefit is partially eroded by higher primary income debit – due to rising interest costs on foreign debt, and the rest is being eaten by lower remittances which perhaps have some netting off against the continued capital flight, and unexplained import payments of wheat and smuggled petroleum products.

Had there not been any capital flight, the current account could have been well in surplus during 10MFY24. The economic slowdown has significantly dented the import demand. It was low in FY23, and sluggish demand continued in FY24. The consequence is low economic growth – it was negative last year—and barring agriculture recovery and its impact on services, the story is similar in FY24.

Just to get perspective, in FY22 when the GDP grew by 6 percent, 10-month imports (by PBS) were at $65.6 billion, and in 10MFY24, they are down to 68 percent to stand at $45.0 billion.

There is no other policy choice but to keep on running near zero current account deficits till the exports and/or FDI grow significantly to let the country afford consumption-led imports.

In April 2024, SBP data shows imports of $4.5 billion while the number stood at$4.9 billion on actual goods being imported. Interestingly, the biggest difference in infamous wheat imports stood at $1.0 billion while SBP payment data shows only $224 million. The question is: how have importers paid for the remaining amount of the wheat imported mainly from Russia.

There is hardly any pickup in demand in many areas, such as transportation whose imports are down to half from the peak in 2022, while the dip in metals is at 35 percent and agriculture and chemicals at 42 percent. There is some decline due to the price effect while the major fall is down to low demand. One area that is picking fast is mobile phones whose imports are at 80 percent of what they were in 2022.

The petroleum imports are down too –petrol and diesel sales are down by 22 percent in 10MFY24 from 10MFY22 and HSD is down by 30 percent. Lately, industry sources claim that 30 percent of diesel demand is met by smuggled products which are partially substituted by imports, and the rest by domestically refined products.

The story of exports is not bad, as the toll is up by 11 percent to $25.7 billion in 10MFY24 where food exports growth topped at 52 percent, and within it, the star is rice – up 76 percent. The issue is that textile exports remained sluggish and down by 4 percent, and the story of other manufacturing is not much different.

Going forward, the concern is rising energy costs and high interest rates to keep textile and other manufacturing exports under pressure while the rice bonanza would be challenged by the revival of Indian rice in the international market.

The services exports are faring better and within ICT exports peaked at $310 million in April and the 10MFY24 number is up by 21 percent to $2.6 billion. On the flip, services imports are growing fast as well – up by 21 percent to $8.4 billion and the notable increase in travel which is up by 53 percent to $1.9 billion in 10MFY24.

The primary income deficit is up by 35 percent to $6.1 billion. The increase is mainly due to high global interest rates which are increasing the interest paid on the foreign debt. Meanwhile, the dividends and profit repatriation are being accrued here, whether these are repatriated or not.

The secondary income balance is up by 8 percent to $25.5 billion – within that, worker remittances are up by 4 percent to $23.9 billion and other current transfers jumped by 161 percent to $1.7 billion. There is some growth in it, but it is less than the potential as remittances are down by 9 percent from their peak in 2022. The major decline in Dubai and Saudi which suggests that these are being netted by capital being flown out, which is mostly parked in Dubai real estate.

If the economic confidence is restored and capital flight reversed, the building up of reserves could be faster as the current account may turn positive and that would give room to clear pending payments, and then economic managers can think about reviving pro-growth policies.