LAHORE: Current account deficit plunged 48% month-on-month (MoM) to $809 million for January compared to $1.544 billion in December last year.
During the first seven months (July-January) of the financial year 2018-19, the current account deficit declined by 17% year-on-year (YoY) to $8.424 billion.
The major reason for the fall in the deficit was driven by a 15% ($305 million) MoM rise in exports to $2.309 billion in January against $2.004 billion in December last year.
The fall was further fueled by a 3% MoM decline in imports. And the MoM fall in CAD of $735 million was also supported by a decline in the overall trade deficit ($461 million).
Remittances remained stagnant at $1.743 billion in January. During the first seven months (July-January) of FY19, 17% decline in the deficit was supported by a decline of $1.14 billion in imports of services alongside a 12% YoY i.e. $1.389 billion growth in remittances.
Meanwhile, the balance on primary income increased from $2,985 million to $3,120 million, a growth of 4.5% and the balance on secondary income went up from $13,657 million to $14,400 million, growing by 5.44%.
The current account to GDP ratio also declined to 4.9% during the first seven months of current FY19 against 5.4% posted during the same period of FY18.
“Current account deficit for January down 54% versus January last year. Current account deficit for July to January is down $1.7 billion versus the same period last year. Decisive actions taken by the govt to rescue an economy inherited on the verge of default showing visible positive results,” said Finance Minister Asad Umar on Twitter.
According to Pak Kuwait Investment Co AVP Research Adnan Sheikh, the decline in current account deficit in January was attributable to higher exports of $300 million and $150 million lower imports.
He added, “Going forward current account deficit will be further supported by deferred oil payment facility expected to kick-in from this ongoing month.”
While speaking to Profit, Arif Habib Limited’s Head of Research Samiullah Tariq said, “I think the government’s policies of discouraging imports are showing their results.”
Mr Tariq believes the hike in interest rates by the central bank, rupee depreciation, increase in taxes on imports had helped drive down the current account deficit.
He added, “Exports have also shown improvement and the majority decline was in the import of services to the tune of $1.14 billion.”
In January, foreign direct investment (FDI) registered a 2.56% increase to $132.2 million compared to $128.9 million received in January 2018.
On average, the FDI recorded a decline of 17.6pc as it fell from $1.761 billion in July-January 2017-18 to $1.451 billion in the first seven months of FY19.
The country-wise data suggested that net foreign investment from China posted a negative growth as it fell to $819.6 million during the period under review compared to the investment of $1,145 million recorded during the same period of last year.
Foreign investment from the United States plunged from $513.4 million in Jul-Jan (2017-18) to negative $151.4 million in the same period of the current FY19.
But foreign investment from the United Kingdom jumped from $48.2 million to $112.3 million in the first seven months of FY19.
Similarly, FDI from the United Arab Emirates increased from negative $28.7 million in the corresponding period of the previous year to $55.8 million in the same period of the current year.
To rein in demand, the central bank has allowed the rupee to depreciate by approximately 28% since December 2017 and made borrowing expensive by hiking the key interest rate by 450 basis points to 10.25% at end of January.
Pakistan’s current account deficit had swelled to a record high of $18 billion in FY17-18 mainly due to a surge in imports and less-than-forecast inflows.