Low imports, high remittances push current account into surplus
Pakistan’s current account recorded back to back surpluses of $508 million in July and $297 million in August, the State Bank of Pakistan said on Wednesday.
The current account is a key means of measuring the health of the economy. It records dollar transactions with the rest of the world. In Pakistan’s case, it is usually in deficit or loss as the country spends more dollars than it earns.
But data released by the State Bank shows that the combined surplus for July and August was $805 million, while last year, these two months combined recorded a negative balance of $1.2 billion.
This is the fourth time the current account balance has reported a surplus since October 2019. Surpluses were recorded in October 2019, May 2020, July 2020 and August 2020.
These surpluses could be attributed to low import bills and a rise in the number of remittances sent back home by overseas Pakistanis.
Imports of goods were recorded $3.175 billion in August while last year in the same month they were $3.519 billion. August’s figures are an improvement over July’s $3.555 billion, which is mainly owed to unprecedented monsoon rains at the end of August that lead to importers delaying dollar payments for their orders stuck at the Karachi port.
Exports fell 19.5% in August due to the monsoon rains, according to Adviser to the Prime Minister for Commerce and Investment Abdul Razak Dawood.
Workers’ remittances in August were 24.7% higher than last year as Pakistanis in Saudi Arabia sent the highest amount of cash than Pakistanis in any other country. With the launch of the Roshan Digital Account, the government aims to get overseas Pakistanis to send more cash home.
Reducing the current account deficit has been the biggest challenge for the PTI government since it came into office in August 2018. Pakistan has been operating on the unsustainable model of spending two dollars for every dollar earned. In such a situation, the country is then left with fewer dollars to pay for imports such as oil and service foreign debts, which have to be repaid in dollars.
Failing to do so can lead to a sovereign default. The PTI government faced this problem soon after coming into 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. To avoid a default, Prime Minister Imran Khan’s government signed a $6 billion bailout with the International Monetary Fund. Recently, Pakistan secured another $1.4 billion from the IMF to fight the economic impact of the COVID-19 pandemic. Later, the Group of 20 wealthy countries deferred Pakistan’s foreign loan payments till December so it could effectively fight the coronavirus.