Pakistan’s Current Account Turns Negative, Again – OpEd


Pakistan’s current account (CA) posted the first deficit in four months in May 2024, of US$270 million against a surplus of US$499 million a month ago. 

CA deficit during 11MFY24 grew to US$464 million against a deficit of US$3.8 billion in the corresponding period last year.

A large primary income deficit of US$1.4 billion was the key reason behind the negative figure, without which CA balance would have been comfortably positive, despite a wider good trade deficit.

The primary deficit ballooned to US$1.4 billion (highest ever level) due to US$1.5 billion worth of payments. These payments included interest on foreign debt and backlog of dividends of multinational companies. As per the central bank, the latter has been nearly completely settled; hence the primary income deficit should moderate to around US$500 million in the coming months.

Goods trade deficit was reported at US$2.0 billion in May, higher than US$1.8 billion in April and doubling YoY. 

Imports of US$5.0 billion were at the highest level in FY24 to date, up 13%MoM and 35%YoY. 

The sequential growth in imports was led by seasonally higher petroleum imports (up 8%MoM) and 12% higher machinery imports. Iron & Steel imports (scrap and other raw materials) rose 40%YoY.

This is also seasonal and does not point to a sustainable rebound in construction activity (down 3%YoY in 11MFY24). 

Exports were up a healthy 17%YoY, mainly driven by exports of textiles (up 18%YoY, seasonal) and food (up 55%YoY. Rice exports doubled YoY).

Remittances in May were an impressive US$3.2 billion, up 15%MoM and 54%YoY, ahead of the Eid-ul-Adha holidays, likely to normalize to around US$2.5 billion in the coming months, in our view.

SBP’s Forex reserves were reported at US$9.1 billion

SBP’s Forex reserves remained flat around US$9.1 billion by mid-June 2024, equivalent to just about two months’ imports. 

The SBP began cutting interest rates in June, by 150bps, taking the policy rate to 20.5%. 

Many industries (cement, autos, steel) are operating at very low utilization levels (50-60%); any likely increase in imports could increase trade deficit.

Tough budgetary measures for the real estate and textile industries may extend the spell of weak demand a few more months (keeping the growth in imports moderate). 

CAD crossing US$500 million is a key risk and can have negative implications for the exchange rate, inflation and monetary policy,.

Shabbir H. Kazmi

Shabbir H. Kazmi is an economic analyst from Pakistan. He has been writing for local and foreign publications for about quarter of a century. He maintains the blog ‘Geo Politics in South Asia and MENA’. He can be contacted at [email protected]

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