KARACHI: In June, the current account recorded a surplus of approximately $334 million, marking the fourth consecutive month of surplus.
This is a significant improvement compared to the same month the previous year when there was a deficit of $2.32 billion, as per data released by the central bank.
Over the last fiscal year, the overall deficit decreased by 85 percent, reaching $2.56 billion. This reduction was largely driven by the shift in the current account from a deficit of $3.76 billion in the first half of the fiscal year to a surplus of over $1.2 billion in the second half.
Throughout the previous fiscal year, the balance of payments was a central concern, with the government facing challenges to avoid default by obtaining loans and limiting essential imports.
The State Bank imposed restrictions on imports due to a shortage of dollars, causing imports to fall more than exports. As a result, the country’s trade deficit narrowed by 43 percent to $27.59 billion in the last fiscal year. Goods exports amounted to $27.9 billion during FY23, compared to $32.49 billion the previous year, while services exports remained relatively stable at $7.3 billion.
Likewise, imports of goods decreased from $71.54 billion a year ago to $51.99 billion, and services imports declined from $13 billion to $8 billion.
The effort to reduce the current account deficit has taken a toll on the economy, particularly impacting industries reliant on imported goods and raw materials. For instance, the large-scale manufacturing sector experienced a negative growth rate of 9.4 percent in the first 10 months of FY23.
Surprisingly, the current account deficit decreased without assistance from the International Monetary Fund or bilateral sources. However, the country managed to secure short-term loan agreements: $3 billion from the IMF and $2 billion from Saudi Arabia, along with $1 billion from the United Arab Emirates at the beginning of the new fiscal year.
While the pressure of default and foreign exchange reserve issues has eased for now, leading to the possibility of better economic growth, independent economists and analysts express concerns that the significant decline in imports may make it challenging for the government to meet its growth target. The IMF has projected an economic growth rate of 2.5 percent for the current fiscal year.
