Current account surplus stands at $1.64B this fiscal year
Pakistan reported a current account surplus of $447 million in November this year. This is the fifth consecutive month Pakistan reported current account surplus.
Last year in November, Pakistan reported a deficit of $326 million. The surplus under the current account head has reached to $1.64 billion so far in the ongoing fiscal year 2021. The fiscal year in Pakistan begins with July. Pakistan reported a deficit of $1.74 billion for the same period last year.
In contrast to previous five years, current account has been in surplus throughout the ongoing fiscal year (July, August, September, October and November). State Bank says it is due to an improved trade balance and a sustained increase in remittances. In November, both exports and imports picked up, reflecting recovery in external demand and domestic economic activity.
“This turnaround in the current account, together with improvement in financial inflows, raised SBP’s foreign exchange reserves by around $1 billion in November. At $13.1 billion, they are now at their highest level in three years,” State Bank says.
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 five months, Pakistan has reported a surplus. One of the reasons for these surpluses is higher remittances.
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 a 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.