Pakistan Current Account in surplus during 1QFY21

Karachi, October 22, 2020: Pakistan Current Account (C/A) clocked in a surplus of US$73 million in Sept-2020 compared to a surplus of US$211 million in Aug-2020.

This was the third consecutive month that Pakistan’s Current Account has recorded a surplus, taking 1QFY21 CA surplus to US$792 million compared to 4QFY20 deficit of US$286 million.

The Sept-2020 C/A balance came in better-than-expected, where largely a deficit was expected based on earlier released numbers by Pakistan Bureau of Statistics (PBS) on Trade Balance (SBP: -US$140 million MoM, PBS: -US$700 million MoM for Sept-2020). The discrepancy exists because SBP relies on receipts and payments of foreign exchange to compile its data while PBS monitors physical movement of goods. The impact of this may reflect in Oct-2020 C/A balance.

In Sept-2020, Balance on Trade in Goods deteriorated by US$140 million (-8 percent MoM) on the back of increase in Imports of Goods by US$581 million (+18 percent MoM), whereas Exports of Goods improved by US$441 million (+29 percent MoM).

The Balance on Primary Income also deteriorated by US$197 million (-61 percent MoM), however increase in Remittances by US$189 million (+9 percent MoM) cushioned its impact.

The C/A witnessed a marked improvement in 1QFY21 vs. its preceding quarter (affected by COVID-19) on the back of US$1.0 billion (+17 percent QoQ) higher Remittances.

Export of Goods improved by 26 percent QoQ whereas Imports of Goods increased by 12 percent QoQ – both offsetting each other in absolute terms.

The C/A surplus clocked in at 1.2 percent of GDP in 1QFY21 compared to C/A deficits of 0.4 percent of GDP in 4QF20 and 2.3 percent in 1QFY21.

The Financial Account recorded a deficit of US$510 million in Sept-2020 due to repayment of loans. Foreign Direct Investment (FDI) remained muted at US$189 million, however up 200 percent MoM.

Hence, overall Balance of Payment recorded a deficit of US$423 million in Sept-2020 with SBP reserves closing Sept-2020 at US$12.2 billion from Aug-2020 closing of US$12.7 billion. The latest SBP reserves stand at US$11.8 billion.

Looking forward, we expect the CA deficit to clock in at US$2.5-3.0 billion in FY21 (1.0-1.2 percent of GDP) as COVID-19 related lockdowns and restrictions ease globally and international oil prices also trend up.