Pakistan's Current Account registers $773 million deficit in July

“This deficit is in line with SBP’s expectations of a current account deficit of 2-3 percent of Gross Domestic Product (GDP) as economic activity continued to progress,” the State Bank of Pakistan (SBP) said on its official twitter account.

It added that despite the recent increase in current account deficit, the SBP’s foreign reserves position continued to strengthen on monthly basis.

“This is in contrast to past trends and is supported by country’s market-based exchange rate system,” the Central Bank added.

According to the data released by the SBP, exports of goods and services were higher compared to July 2020 as they rose to $2.74 billion in July 2021 from $2.34 billion in same month of last year.

1/2 CAB posted a deficit of $773 mln in Jul21 compared to a deficit of $1.6 bln in Jun21. This deficit is in line with SBP’s expectations of a current account deficit of 2-3 pct of GDP as economic activity continued to progress. pic.twitter.com/Ih1rqC1j2E

— SBP (@StateBank_Pak) August 20, 2021

The increase in current account deficit was mainly attributed to higher imports during the month. However some of the major imports were seasonal such as COVID vaccine or heavy machinery to be used in industrial units in the country.

The level of current account deficit is not only lower compared to that in the previous government but its nature is also different from the past when the deficits were driven by an unsustainable consumption boom. Whereas in FY21, imports of capital, such as machinery made more of a contribution to the import bill, which bodes well for future growth.

At over $17 billion, Pakistan’s foreign exchange reserves have risen to a 4.5 year high in June. They rose by $5.2 billion during FY21. Conversely, during FY17 and FY18, they fell by $2 billion and $6.4 billion, respectively.

The data showed that the CAD without official transfers expanded to $827 million compared to the surplus of $565 million in same period of last year. In addition, the trade deficit in goods expanded from $1.672 billion in July 2020 to $3.14 billion in July this year.

The trade deficit in services however narrowed to $232 million in the corresponding month as compared to the deficit of $315 million in July 2020.

Similarly the workers’ remittances edged down to $2.707 billion in July this year compared to $2.764 billion in July 2020.

The current account balance as a percentage of gross domestic product (GDP), witnessed a deficit of 2.8% in July 2021 as opposed to the deficit of 2.4% in the same period of 2020.