Pakistan’s current account deficit narrows to $98m

KARACHI: Pakistan’s current account deficit narrowed significantly in August, offering some relief to the country’s external account.

However, higher oil prices and a growing trade deficit continue to pose challenges for the economy.

According to data released by the State Bank of Pakistan, the current account deficit stood at $98 million in August. It was $342 million in the same month of the previous fiscal year.

The deficit also declined sharply from $445 million recorded in July, the first month of the current fiscal year.

The improvement has raised the possibility of Pakistan recording a current account surplus in September if the trend continues.

During the first two months of the fiscal year, the cumulative current account deficit stood at $543 million. It was $853 million during the corresponding period last year.

Despite the improvement, external pressures remain a concern. International oil prices have crossed $100 per barrel amid the ongoing conflict in the Gulf region.

Higher oil prices could increase Pakistan’s import bill and put additional pressure on its external account.

The country’s trade position has already come under pressure. Pakistan’s trade deficit widened by 18.1 per cent year-on-year during July and August to $7.12 billion.

The increase was mainly driven by faster growth in imports compared with exports.

State Bank figures showed that merchandise exports reached $5.445 billion during the first two months of the fiscal year. Exports stood at $5.238 billion during the same period a year earlier.

Imports, meanwhile, rose to $11.635 billion from $10.449 billion.

The services trade balance provided some relief. The deficit in services declined to $562 million during the first two months from $753 million in the corresponding period last year.

The government has also been focusing on increasing exports. Prime Minister Shehbaz Sharif has directed relevant departments to remove obstacles facing exporters.

Remittances have remained another important source of support for Pakistan’s external position.

A significant share of Pakistan’s remittances comes from Gulf countries. Economic disruptions in the region have therefore raised concerns about future inflows.

So far, remittances during the first two months of the fiscal year have remained higher than the previous year. The inflows have helped support the balance of payments, exchange rate stability and foreign exchange reserves.

Foreign direct investment also recorded strong growth in August.

According to the State Bank, FDI inflows increased by 80.5 per cent to $315.9 million in August. The figure was $175 million in the same month last year.

Despite the increase, the overall level of foreign investment remains relatively modest.

During the first two months of the fiscal year, FDI rose by 24 per cent to $494.5 million. It stood at $398.6 million during the same period a year earlier.

China remained the largest source of FDI in August. Chinese investment reached $113 million.

Canada followed with $50 million, while the United Arab Emirates invested $48 million.

China’s total investment during the first two months reached $176 million. This compares with $120.7 million during the corresponding period last year.