Dollar inflows more than outflows for third consecutive month
Pakistan reported a current account surplus for the third consecutive month in September, which helped the country record its first quarterly (three-month) surplus for the first time in more than five years, according to data shared by the State Bank of Pakistan.
In September, the surplus was reported at $73 million against a deficit of $278 million a year earlier.
This helped Pakistan’s quarterly current account record a surplus of $792 million in the first quarter (Jul, Aug and Sept) of the fiscal 2021 year. This is the first quarterly surplus in more than five years. Last year, Pakistan’s current account was in a deficit of $1.49 billion for the same period.
“Continued buoyancy in remittances, up by 9% from the previous month, and a 29% increase in exports drove the current account surplus in September. Imports also picked up in line with the on-going revival in domestic economic activity,” the State Bank explained.
The current account is an important yardstick to measure the health of a country’s economy. It records dollar transactions of a country 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.
But for the last three months, Pakistan has reported a surplus. One of the reasons for these surpluses is higher remittances. Overseas Pakistanis sent a record $7.1 billion during the quarter.
Reducing the current account deficit has been the greatest problem for the PTI government since it came into office in August 2018. Our usual trend of spending two dollars for every dollar earned 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 a 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 programme was supposed to unlock an additional funding of $36 billion over its life.