All-time high remittances help country report $424m in surplus
Pakistan’s current account swung back to surplus for the third time since October 2019, the State Bank of Pakistan said on Monday.
An important gauge to measure the health of our economy, the current account records our dollar transactions with the rest of the world. In Pakistan’s case, it is usually in deficit or loss because it spends more dollars than it earns. As per latest data, the country recorded a surplus of $424 million in July, a turnaround from a deficit of $100 million the preceding month. Last time surplus of $13 million was recorded in May 2020.
All thanks to a record high amount of remittances the country received in last month.
Pakistanis abroad sent home remittances worth $2.77 billion in July, which was the highest amount of dollars Pakistanis overseas have ever sent back to their families. Another factor that helped improve the current account situation was exports. Exports went up 19.7% in July, after a 25.5% growth in June. This happened because coronavirus cases dropped in Pakistan and many countries such the UAE started importing from us again.
Reducing the current account deficit has been the greatest problem for the Pakistan Tehreek-e-Insaf government since it came into office in August 2018. Since we spent two dollars for every dollar earned, this was not sustainable as it led to a high current account deficit. The country is then left with fewer dollars to pay for imports such as oil and service foreign debt, which has to be repaid in dollars. Failing to do so can lead to a sovereign default. The PTI government faced this problem soon after forming the government. The country’s dollar reserves dropped to Rs6 billion within the first six months of the new government’s tenure. This was hardly enough to pay for two months of imports. Depleting dollar reserves are cause for alarm as they are linked to the gradual devaluation of the rupee. To avoid the default and shore up our dollar reserves, PM Imran Khan’s government signed a $6 billion bailout with the International Monetary Fund to deal with this challenge. The IMF programme opened more doors for Pakistan as the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank also pledged support to the country. According to the IMF, the bailout program was supposed to unlock an additional funding of $36 billion over the life of this program.
Recently, Pakistan secured another $1.4 billion from the IMF to fight the economic impact of Covid-19 pandemic. Later on the Group of 20 wealthy countries deferred Pakistan’s foreign loan payments till December so it could effectively fight the coronavirus.