Current account deficit surges to $5.1bn in 4MFY22

MoF claims Pakistan on high growth path but confronted with persistent inflationary pressure 

ISLAMABAD: The country’s current account deficit (CAD) has surged 4.7 per cent of the GDP to $5.1 billion during the first four months of the current fiscal year (4MFY22) against a surplus of $ 1.3 billion (1.4pc of GDP) last year.

As per details, the Monthly Economic Update & Outlook November 2021 released by the Finance Ministry states that the CAD widened due to the constantly growing import volume of energy and non-energy commodities, along with a rising trend in the global commodity prices, COVID-19 vaccines, food, and metals.

Imports grew by 66pc to $23.5 billion as compared to $14.1 billion during July-October FY22 while exports grew by 32.2pc reaching $9.7 billion during the period under review.

The MoF claims that Pakistan is on a high growth path and at the same time, it is confronted with persistent inflationary pressure. 

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The second estimates of the cotton crop along with the latest performance of high-frequency variables are encouraging and setting an optimistic baseline scenario. However, there are some risks to the economy associated with rising international commodity prices, widening of the CAD and subsequent pressure on Pakistani rupee, the report states.

Meanwhile, CPI inflation during 4MFY22 was recorded at 8.74pc against 8.87pc during the same period last year. Inflation had started declining after surging to 11.1pc in April, mainly driven by a drop in the prices of agricultural products.

The report further states that the fiscal deficit reduced to 0.8pc of GDP in Q1FY22 against 1.1pc of GDP in the comparable period of last year. The primary balance remained in surplus and stood at Rs184.2 billion or 0.3pc of GDP in Q1FY22 against the surplus of Rs257.7 billion or 0.6pc of GDP last year.

The level and degree of persistence of inflation is the consequence of depreciation that followed the previous balance of payments crises, reinforced by the acceleration of worldwide inflation and the exceptional surge in international commodity prices, the report states.

These measures should contain the CAD for the current fiscal within manageable proportion. This will also help to adjust the pressure on the exchange rate and hence on expected inflation.

Moreover, IMF has also acknowledged that based on available data, the government’s extensive policy response to the COVID-19 pandemic had helped minimise its human and macroeconomic repercussions and thus, resulted in a strong economic recovery. 

External pressures, on the other hand, have begun to materialise, mostly due to the compound impacts of increased economic activity, an expansionary macroeconomic policy mix, and rising international commodity prices. However, the measures taken by the government will ease these pressures in the coming months.

 

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Shahzad Paracha
The writer is a member of Pakistan Today's Islamabad bureau. He can be reached at [email protected]

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