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Pakistan’s present account deficit narrows 71% in Jul-Feb FY20

by Pakistan Latest News Update
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Representational image. PHOTO: REUTERS

Representational picture. PHOTO: REUTERS

KARACHI: Pakistan’s present account deficit – the hole between international funds and inflows – narrowed down 71% to $2.84 billion in first eight months (July-February) of the present fiscal yr primarily on account of a major drop in imports.

The present account deficit had been at $9.81 billion in the identical interval of earlier fiscal yr, the State Financial institution of Pakistan (SBP) reported on Wednesday.

In February, the deficit amounted to a nominal $210 million. It was 61% decrease than the deficit recorded within the earlier month of January and 38% down in comparison with February 2019. “The downturn in international oil prices has partly helped Pakistan slash the import bill,” Topline Securities’ Director Analysis Atif Zafar mentioned whereas speaking to The Specific Tribune.

Pakistan closely depends on imported power sources. The worldwide benchmark oil value (Brent) dropped over 15% to beneath $50 per barrel within the month of February.

The share of power stood at one-fourth ($8.23 billion) within the nation’s whole import invoice of $31.51 billion within the first eight months of FY20, based on the Pakistan Bureau of Statistics (PBS). Now, the crude oil value has dropped over 50% to beneath $30 a barrel in comparison with round $60 initially of February. The decline got here because of the international financial slowdown and an oil value conflict between two main oil-exporting nations amid the outbreak of coronavirus.

The low oil value would depart an total optimistic impression on Pakistan. “Latest developments (the low oil price and global economic slowdown) can further reduce the current account deficit by $500-600 million in FY20,” Zafar mentioned. “We had estimated a current account deficit of $4.5 billion for FY20 before the massive drop in oil price. The deficit may now stand at $4 billion,” he estimated. The import of products dropped 17.5% to $29.65 billion within the first eight months of FY20 in comparison with $35.94 billion within the corresponding interval of earlier fiscal yr, the central financial institution mentioned.

Nevertheless, the quickly worsening international financial and well being scenario might negatively impression Pakistan’s international earnings. “The situation may lead to a slowdown in the inflow of dollars on account of a likely drop in exports and workers’ remittances,” he mentioned.

“However, the drop in oil imports (by around $4-5 billion) will offset the impact of low dollar inflows (by around $2-3 billion in a year),” he identified. “This may give a net benefit of around $500-600 million in the remaining four months (March-June) of the current fiscal year.”

Within the first eight months of FY20, nonetheless, the exports improved round 3% to $16.43 billion in comparison with $16 billion in the identical interval of final yr, the SBP mentioned.

Equally, employees’ remittances rose over 5% to $15.12 billion within the interval beneath overview in comparison with $14.35 billion within the corresponding interval of earlier yr, it added.

An enormous depreciation of the rupee – over 50% – towards the US greenback between December 2017 and June 2019 partly helped the nation raise exports and appeal to larger remittances.

The persistent drop within the present account deficit helped in constructing the nation’s international foreign money reserves by $5.48 billion to $12.76 billion by the top of February 2020 in comparison with $7.28 billion on the finish of June 2019. This helped the rupee to stabilise previously eight months. It closed at Rs158.52 to the US greenback on Wednesday.

Taurus Securities Head of Analysis Mustafa Mustansir mentioned it will be untimely to quantify the web profit and loss to the nationwide economic system within the wake of coronavirus pandemic. Nevertheless, the closure of Pakistan’s border with Afghanistan might end in a rise within the present account deficit. “We have trade surplus of around $1 billion with Afghanistan and all trade is done via land between the two countries,” he mentioned.

In addition to, the lockdown in European international locations might trigger delay in Pakistan’s exports. There was conflicting information that the European nations delayed or cancelled among the export shipments since their markets had been fully closed.

Equally, if the worldwide oil value stays stagnant at decrease ranges, then it would trigger job cuts within the oil-exporting international locations, together with these within the Center East, the place a majority of Pakistani expatriates are employed and most of them being daily-wage employees. 

Revealed in The Specific Tribune, March 19th, 2020.

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