Current account deficit narrows by 91% in October, stands at $74m

The Current Account Deficit (CAD) showed a notable year-on-year contraction of 91 percent in October, according to the latest data released by the State Bank of Pakistan (SBP) on Monday.

While the deficit narrowed significantly compared to the same month last year, it exhibited a month-on-month widening trend. The CAD for October stood at $74 million, down from $849 million in the corresponding period last year.

The SBP's estimation proved accurate, with the deficit remaining within the bank's expectations. Last week, the SBP governor expressed confidence that the CAD for October would stay below $100 million and anticipated continued containment throughout the fiscal year 2023-24. The contraction aligns with SBP policy, even with the relaxation of import restrictions.

In FY23, a stringent ban on most imports resulted in an 87 percent reduction in the CAD. Despite a partial easing of import restrictions, banks face constraints in opening letters of credit (LCs) for imports due to a persistent shortage of dollars in the interbank market.

October witnessed a 61 percent widening of the CAD compared to September, indicating a potential trend of higher imports and declining exports in the coming months. Although remittances increased to $2.5 billion in October, the four-month inflows recorded a 13.3 percent decline, raising concerns about a potential increase in the CAD by the end of FY24.

Encouragingly, the CAD during the first four months (July-October) of FY24 contracted by $2 billion, as per SBP data. During this period, the CAD was $1.06 billion, a significant decrease from $3.1 billion in the corresponding period last year. 

This contraction could assist the government in meeting foreign debt servicing obligations, with an anticipated payment of $25 billion during FY24.

Exports of goods in July-October increased by $170 million to $9.777 billion, while imports saw a decline of $4.2 billion to $21 billion. Additionally, services exports and imports registered increases of $78 million and $534 million, respectively