Pakistan expects CAD to fall by $2 billion, according to IMF forecasts

• The government expects imports to decline in the rest of the 24-year period.
• The Ministry of Finance expects an improvement in the overall trade balance.
• Pakistan’s external financing requirements stand at $28 billion.

ISLAMABAD: While not deviating from the projected macroeconomic framework, Pakistan has informed the International Monetary Fund (IMF) that it expects its current account deficit (CAD) to narrow by $2 billion to end at $4.5 billion compared to with $6.5 billion projected by the end of June 2024, it said The news on Tuesday.

The downward projection of the CAD indicated that the government expected imports to continue to decline during the rest of the current financial year.

Amid difficulties in realizing foreign dollar inflows up to the desired level, Pakistani authorities have no choice but to devalue the CAD to prevent a balance of payments crisis.

Pakistan’s external financing requirements stood at $28 billion — external debt service of $23.5 billion and CAD provision of $4.5 billion.

Following the signing of the IMF’s $3 billion Stand-by Arrangement (SBA) agreement, foreign exchange reserves improved in July 2023, but in the past two months, the pace of external loans and grants has slowed. Now authorities expect the completion of the first review of the IMF program to spur dollar inflows from multilateral and bilateral creditors.

Economist Dr Hafiz A Pasha estimates that the external financing gap may be around $6 billion to $7 billion for the current fiscal year, and the completion of the IMF review would help Islamabad reduce this gap.

“The current account deficit stood at $0.947 billion in the first quarter of the current fiscal year, so overall CAD is expected to narrow to $4.5 billion against an earlier forecast of $6.5 billion for FY24,” sources said. The news on Monday.

These projections were shared with the visiting IMF review mission, which is working with Pakistani authorities under the $3 billion SBA program.

The government projects that exports will be around $30.843 billion while imports will reach $64.7 billion in the current financial year.

The finance ministry’s forecast for an improvement in the overall trade balance is based on its hope for an increase in rice exports in the wake of increased production of 2 million tonnes of rice and 5 million additional bales of cotton. However, the sources said the import bill may come down from the projected figure of $64.7 billion to $58 billion for the current fiscal year.

There is another risk that remittances may also take a hit from the projected target as they may be less than $30 billion against the official forecast of $32.889 billion for the current financial year.

The government expects the GDP growth rate to hover around 3.5% following improved performance of the agriculture sector and large-scale manufacturing sector growth of around 3%.

Consumer Price Index (CPI) inflation is expected to hover around 21% on average this fiscal year. Declining commodity imports, improving exchange rate and better supply of goods will help lower inflation on a monthly basis for the rest of the current financial year.