Due to a huge decrease in the import bill, Pakistan’s current account deficit (CAD) decreased by more than 67% over the first seven months of this fiscal year (FY23), with the negative gap in January alone recorded at $0.242 billion, a fall of 90% YoY.
According to data released on Monday by the State Bank of Pakistan (SBP), the overall current account deficit for the nation decresed by $7.75 billion, from $11.558 billion in the same time of FY22 to $3.799 billion in FY23.
According to the central bank, “CAD registered $0.2 billion in January 2023 compared to a deficit of $2.5 billion in January 2022.”
“A 38% YoY decrease in total imports was the main factor contributing to the drop in the deficit on a YoY basis. However, overall exports and remittances also fell by 7% and 13% year over year, respectively, according to a report from trading company Arif Habib Limited (AHL).
To the dismay of companies that depend on inbound supplies for their operations, the fall coincides with Pakistan’s move to restrict imports, which has limited the opening of letters of credit for a range of sectors.
The decision was made as Pakistan’s foreign exchange reserves were at catastrophic lows, covering less than one month’s worth of imports. Islamabad and the IMF are currently in negotiations to restart the Extended Fund Facility (EFF) programme, which has been deemed essential but has been stopped.
The IMF and Pakistan virtually began discussions this week in an effort to negotiate an agreement to provide cash that is necessary to keep the country afloat.
The two were unable to come to an agreement earlier this month, and after 10 days of deliberations, an IMF group visited Islamabad with the promise that talks would continue. Pakistan is suffering from a severe economic crisis and is in desperate need of money.
The central bank of Pakistan’s foreign exchange holdings has decreased to just over $3 billion, just enough to fund three weeks’ worth of imports.
Resuming the IMF programme will also open up new finance options for Pakistan.
In a report released last week, Fitch Ratings predicted that the current account deficit for FY23 would total $4.7 billion.
“As a result, we anticipate a full-year deficit of $4.7 billion (1.5% of GDP) in FY23 following $17 billion (4.6% of GDP) in FY22. Import limitations, currency availability, fiscal restraint, rising interest rates, and initiatives to reduce energy usage have all contributed to the narrowing of the CAD, according to the rating agency.