Current account deficit narrows by 91% as remittances, exports outpace imports

• Exports rose 21% year-on-year in October.
  
• The deficit narrows to $74 million in the same month.
• Overseas Pakistanis remitted $2.463 billion.

KARACHI: Pakistan’s current account deficit narrowed by 91% in October from a year ago as remittances from overseas Pakistanis, lower imports and improved exports boosted the country’s external balance, The news it said on Tuesday citing State Bank of Pakistan (SBP) data.

According to the data, the country’s deficit narrowed to $74 million in October as exports rose 21 percent year-on-year to $2.762 billion, while total imports fell 7 percent to $4.346 billion.

Pakistanis working abroad sent home remittances of $2.463 billion in October, a 10 percent increase.

On a monthly basis, however, the current account deficit widened by 61% in October compared to the previous month, mainly due to a wider trade gap caused by a rise in imports.

Although October’s deficit was higher than September’s 46%, analysts noted that it was the second month in a row that the current account balance was close to breakeven.

In October, the country’s imports increased by 9%. Volatility in international oil prices amid the conflict in the Middle East appeared to have led to a rise in Pakistan’s import bills. The slight increase in imports also reflects the recovery of overall demand in the country’s economy.

The country’s goods exports rose 12% and remittances rose 12% month-on-month in October. Pakistan’s current account deficit narrowed by 66% to $1.1 billion in the first four months (July-October) of the current financial year. This was mainly due to the government’s policy of keeping the trade deficit and consequently the current account deficit at a sustainable level in the face of low foreign exchange reserves.

Analysts predict that this fiscal year’s deficit will be manageable because planned foreign inflows are likely to materialize. According to economist and analyst Sana Tawfik of Arif Habib Limited, the current account deficit is expected to be around $4.1 billion in 2024.

“Given that the expected funding from bilateral and multilateral partners will support the country’s foreign exchange reserves, the deficit appears to be sustainable,” Tawfik said.

“Furthermore, in the coming months, the government was expected to stick to its policy of prioritizing imports of essential goods over all other goods, especially non-essential goods. It is unlikely that the government will fully allow imports of non-essential items until the reserve position improves.”

Last week, International Monetary Fund (IMF) staff and Pakistani authorities reached a staff-level agreement on the first review under the Pakistan Stand-by Agreement (SBA), which is subject to approval by its Executive Board IMF.

Upon approval, the country is set to receive approximately $700 million, bringing total disbursements under the SBA to nearly $1.9 billion. As of November 10, Pakistan had $12.5 billion in foreign exchange reserves, up from $8.5 billion in May.

Pakistan is expected to receive about $1.2 billion in financing from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank before the end of the year. The government is also expecting more inflows from Saudi Arabia and the United Arab Emirates to support the country’s economy.