Economy

Pakistan’s CA reached 5-year low level

Lahore, July 21, 2020: Pakistan’s Current Account (CA) declined sharply 78 percent during the last fiscal year

The CA deficit settled at US$2.97 billion (1.1 percent of GDP) in FY20 compared to a deficit of US$13.43 billion (4.8 percent of GDP) in FY19, a contraction of 78 percent YoY.

The marked improvement in CA deficit during the year came in on the back of improvement in Trade Balance as Imports of Goods declined by 18 percent YoY, whereas Exports of Goods fell by 7 percent YoY.

In both USD terms and percentage of GDP terms, the CA deficit is at a 5 year low.

During the year, Remittances also increased by 6 percent YoY to US$23.12 billion (more than the Exports of Goods during the year).

The decline in imports is largely attributable to (1) government increasing import duties to curb the Trade Deficit, (2) a higher PKR/USD, (3) decline in international oil prices and (4) the impact on economic activity due to COVID-19 outbreak.

The Financial Account also recorded a surplus in FY20 of US$7.7 billion owing to US$2.52 billion Foreign Direct Investment (+76 percent YoY) and program loans from multilateral agencies.

Hence, the overall Balance of Payment recorded a surplus of US$5.30 billion during the year compared to a deficit of US$1.50 billion last year.

In the 4QFY20, the quarter most affected by the COVID-19 pandemic, the CA recorded a deficit of US$282 million (0.4 percent of GDP) compared to 3QFY20 deficit of US$652 million (1.0 percent of GDP).

Looking forward, we expect the CA deficit to clock in at US$4.0-4.5 billion in FY21 (1.5-2.0 percent of GDP) as COVID-19 related lockdowns and restrictions ease globally and international oil price also trend up.

 Pakistan CA deficit clocked in at US$96 million in Jun-2020 compared to a surplus of US$344 million in May-2020, a deterioration of US$440mn.

Remittances had increased by US$600mn in Jun-2020 compared to May-2020, however higher deficits on both Balance on Trade in Goods and Services by US$440mn and US$220mn, respectively resulted in a CA deficit for the month. The deterioration in Balance on Primary Income by US$440 also played its part. 

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