Pakistan's current account deficit hits two-year low

Curbs on imports by Pakistan began to yield results as the cash-strapped country's current account deficit (CAD) hit a two-year low of $74 million in a month, it emerged on Monday.

The State Bank of Pakistan (SBP) reported that "the current account deficit (was) recorded at $0.1 billion in February 2023 against a deficit of $0.5 billion in February 2022.

"Cumulatively, CAD was reduced to $3.9 billion in (eight months) Jul-Feb FY23 compared to a deficit of $12.1 billion in July-Feb FY22," said the central bank.

The CAD was being managed by reducing imports due to low level of foreign exchange reserves keeping the country on the margin of defaulting on the external liabilities.

However, experts have warned that cuts in imports would slow down economic growth and increase unemployment and poverty.

The Express Tribune newspaper reported that securities brokerage firm Arif Habib Limited said in a brief commentary that "the primary reason behind the decline in deficit (CAD) was a 24 per cent decline in total imports (compared to the same month of the last year)."

The country's current account deficit declined 86 per cent to $74mn in February compared to a deficit of $519mn in the same month last year. "This is the lowest monthly deficit (CAD) since February 2021," said Arif Habib Ltd.

But total exports and remittances also decreased by 19 per cent and 9 per cent in the month, respectively, compared to the same month of last year. In the first eight months (Jul-Feb) of the current fiscal year, the country's deficit cumulatively decreased by 68 per cent to $3.9bn compared to a deficit of $12.1bn during the same period last year.

Pakistan is scrambling to increase its reserves which are estimated to be at $4.8 billion after China refinanced $500 million last week. Earlier, a Chinese bank provided $700 million to Pakistan.

Despite a slight improvement in the reserves, the situation is still grim as the country needs to pay $7 billion till June this year, making further borrowing necessary.

Efforts to secure a loan from the International Monetary Fund have been unsuccessful so far, which is expected to open avenues for further borrowing from the international market or get loans from friendly countries.