The State Bank of Pakistan (SBP) reported on Tuesday that for the second consecutive month in April, Pakistan had experienced a current account surplus. The development is largely attributed to the administrative measures that have led to a reduction in imports.
SBP data demonstrated a monthly surplus of $18 million compared to last year’s deficit of $640 million. This marked the first time since November 2020 that a surplus has been posted. The surplus was as high as $654 million in March, the highest recorded since February 2015.
The surplus was lower than predicted due to the SBP’s decision to clear an import backlog. As a result, in the first ten months of the fiscal year, the current account deficit decreased by 76% to $3.25 billion from $13.65 billion in the same period last year.
SBP’s data shows a year-on-year fall of 38% in goods imports to $3.7 billion in April. Exports also dropped by 33% to $2.11 billion. Concurrently, remittances saw a decrease of 29% to $2.2 billion.
The current account’s two-month surplus is attributed to import restriction measures. However, these necessary measures are not sustainable and have slowed down large-scale manufacturing and overall activity in the service and trade sectors.
The suggestion is to increase the economy’s productive capacity and build an export sector to maintain the surplus when import restrictions are lifted. The focus should be improving the 10% export-to-GDP ratio rather than reducing the 22-25% import-to-GDP ratio. Also, an orderly rupee movement could help sustain remittances, aiding in meeting the country’s current account needs.
Last year, as foreign exchange reserves fell to critical levels, the government limited imports to essential items. This decision was met with complaints from various sectors as banks were not opening letters of credit (LCs). Many manufacturers, particularly in the automotive sector, temporarily closed their plants due to inventory shortages.
International institutions, including the International Monetary Fund (IMF), World Bank, and Asian Development Bank, have reduced Pakistan’s growth forecasts for this fiscal year to 0.4% and 0.6%. As of May 5, foreign exchange reserves have dropped to $4.38 billion, insufficient to cover a month’s imports.
Pakistan urgently needs to restore a vital loan program with the IMF, as its reserves are critically depleting, risking a default.
