CAD narrows by 47pc in July-October

FOOLS_NIGHTMARE · Nov 24, 2022

The current account deficit (CAD) fell by 68 per cent to $567 million in October compared to $1,779m in the same month last year on account of steep decline in the imports.

However, the CAD increased by 56pc when compared with $363m in September.

The data issued by the State Bank of Pakistan on Monday showed that the CAD declined by 46.8pc in July-October FY23 compared to $2.821 billion against $5.305bn in the corresponding period last year.

The imports of goods and services fell to $23.688bn in 4MFY23 against $26.808bn in 4MFY22. However, exports of goods and services rose slightly to $9.825bn compared to $9.576bn in the same period last year.

According to SBP data, the trade deficit also narrowed by almost 23pc to $11.604bn in the first four months of 2022-23 against $15.059bn in the corresponding period last year.

The sharp contraction in CAD seems to have eased pressure on the government which has been struggling to build the country’s exchange reserves not enough to cover eight weeks’ imports. However, the situation regarding the inflows from friendly countries looks static, particularly after a delay in talks with the IMF.

The SBP’s foreign exchange reserves stood at $8bn and will further decline with the payment of $1bn against the maturity of Sukuk (Islamic bonds) on Dec 5.

There is still a serious problem to meet the country’s external financing obligations, but the finance minister has recently rejected all perceptions about growing default risks and difficulties around the economy and claimed enough funds have been arranged to bridge the external account gap.

However, there is no clear response from China as Pakistan is willing to roll over $13bn Chinese loans for more than a year. Chinese power sector inflows are stuck up due to non-clearance of dues of about Rs300bn of Chinese companies already functioning here. Raising dollars from the international market is out of the question due to the massive decline in bond prices in the international market. The delay in IMF talks for the 9th review could affect the release of loans from the World Bank.

So far, the government has not been able to attract investments from Arab countries.

At the same time, the massive decline in machinery imports has slowed down economic activities creating a serious problem of joblessness. Over 20pc textile units are believed to have been closed down across the country but no official data is available except that exporters said they are sitting without orders.

“Many problems have appeared after floods which destroyed cotton crops. No gas supply to factories is another hit which has started forcing us to relieve maximum workers,” said Aamir Aziz, a textile exporter to European Union and the United States.

“It is necessary to slow the economy down to arrest the main culprit inflation. At the same time, it will tame the twin deficits. But this should be a stop-gap measure and the focus should be on increasing productivity,” said Faisal Mamsa, CEO of Tresmark, a terminal that tracks live prices of financial markets.