Inside Financial Markets
Current Account posts $773 million surplus in July-April - Inside Financial Markets

Current Account posts $773 million surplus in July-April

– The News

 Pakistan’s current account deficit shrank 61 percent year-on-year in April 2021 helped by upsurge in remittances and a healthy recovery in exports, the central bank’s data showed on Tuesday.

The current account balance posted a deficit of $200 million in April compared to a deficit of $510 million a year ago. The deficit was, however, 506 percent higher than the previous month.

The current account showed a surplus of $773 million in 10 months of this fiscal year as against the deficit of $4.657 billion a year ago.

The trade deficit widened 35.3 percent to $3.041 billion in April as roaring domestic demand necessitated imports with the recovery in economic activities after coronavirus pandemic.

“Overall if you see, the additional trade deficit during FY21, which has been a result of strong growth in imports on the back of a pickup in economic activities has been more than covered up by incremental remittances,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

“Growth in IT exports and lesser imports under services due to restriction on physical travel has also contributed to lower current account deficit,” Tariq added.

Exports rose 61 percent to $2.295 billion in April whereas goods imports increased 58 percent to $4.969 billion.

Total services exports increased 48 percent year-on-year to $525 million in April, while technology exports surged 66 percent year-on-year to $196 million.

Remittances from Pakistani citizens employed abroad rose to an all-time high of $2.8 billion in April, which is 56 percent higher than corresponding month last year.

“With the economy rebounding strongly in FY21, imports are picking up but are offset by unprecedented growth in remittances and recovery in exports.

With the CAB [current account balance] contained and FX reserves at a 4-year high, the economic revival is on a sound and sustainable footing,” the State Bank of Pakistan said in a tweet.

Remittances climbed 29 percent to $24.2 billion in July-April FY2021. Exports increased 7 percent to $20.993 billion in July-April FY2021. Imports rose 13 percent to $42.309 billion.

The central bank’s foreign exchange reserves rose to $16 billion as of May 07, 2021 from $7 billion at end-June 2019.

However, net foreign direct investment in Pakistan fell 32.5 percent to $1.553 billion in 10 months of the current fiscal year.

The country’s economy is expected to grow around 4 percent this fiscal year as the recovery gathers pace amid businesses, households and investors shake-off the effects of the Covid-19.

The faster than anticipated recovery in the economy could be reflected in the rise in domestic economic activity and hence surge in imports.

However, analysts still see the country to continue to run a current account surplus in FY2021.

“In my view, Pakistan’s current account will maintain a current account surplus in the current fiscal on the back of strong growth in remittances,” Tariq said.

Saad Hashemy, an executive director at BMA Capital said, “Even if current run rate maintains, Pakistan can well achieve current account surplus for FY21, which is a significant improvement over both IMF forecast of -1.5 percent deficit and also State Bank’s forecast of less than 1 percent deficit”.

Syed Zaki Hussain

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)