The current account during July-March FY 2024 registered a deficit of $0.5 billion, against a deficit of $4.1 billion in the corresponding period last year, as per the Government of Pakistan’s official data.
The predominant factor behind this improvement in CAD in the merchandise trade deficit, was the 25.2 per cent decline, which resulted from a substantial fall in import payments to $38.8 billion in July-March FY2024 from $42.1 billion during the corresponding period last year.
During July-March FY2024 the primary income account recorded a deficit of $5.6 billion, as against to $4.0 billion registered in the same period last year. The deficit rise was chiefly driven by higher interest payments and relatively higher profits and dividend repatriation.
Specifically, there has been a substantial rise in interest payments on external debt and liabilities, which grew during July-March FY2024 by almost $0.9 billion to $4.2 billion, against to $3.3 billion during the corresponding period last year. The surge in interest payments primarily shows the impact of rising global interest rates, which are also reflected in the higher Secured Overnight Financing Rate (SOFR). Moreover, some of the increases in debt servicing are attributed to the expiration of the Debt Servicing Suspension Initiative (DSSI), which resulted in the accumulation of both long and short-term debt servicing.
| Current Account Balance And Trade US $ million | ||||
|---|---|---|---|---|
| Details | July-June | July-Mar | ||
| 2021-22 | 2022-23 | 2022-23 | 2023-24 P | |
| Current Account Balance | -17481 | -3275 | -4054 | -508 |
| Trade Balance | -39050 | -24819 | -21079 | -15757 |
| Exports of Goods FOB | 32493 | 27876 | 21065 | 23026 |
| Imports of Goods FOB | 71543 | 52695 | 42144 | 38783 |
| Service Balance | -5840 | -1042 | -374 | -1655 |
| Exports of Services | 7102 | 7596 | 5813 | 5808 |
| Imports of Services | 12942 | 8638 | 6187 | 7463 |
Repatriation of profit
The statistics up to March 2024 also showed a substantial rise in the repatriation of profits and dividends to $830.5 million during July-March FY2024 as against to just $233.1 million for the corresponding period last year.
Since September 2023 the relative ease in FX flows permitted State Bank of Pakistan (SBP) to ease restrictions on the repatriation of profit and dividends.
This also reflects that the earnings of foreign investors have risen because of the revival of economic activities in Pakistan. The sectoral decomposition of profit and dividend repatriation suggests that petroleum refining, power, food, financial services, and transportation sectors repatriated significantly more this year.
Although the primary income account deficit has increased, the improvement in other components of the current account, trade balance, and workers’ remittances has compensated for these outflows during July-March FY2023. As a consequence, during July-March FY2024 the current account deficit narrowed substantially by 87.5 per cent to $508 million from $4.1 billion registered during the same period last year.
It is said that our country’s external account has shown resilience over the past two years. The viewpoint for export growth in the coming years looks promising, driven by improved worldwide trade situations, renewed growth in trading partners, and enhanced global and domestic supply chains. Additionally, the anticipated import growth is expected to stimulate domestic economic activities. Moreover, the IMF has acknowledged in its recent country report (May 2024) that Pakistan’s external position aligns with medium-term fundamentals and desirable policies.
Future plan
In the future the government is optimistic about securing a long-term IMF programme. This programme would offer additional external financing and enable the implementation of structural reforms to address deep-rooted economic problems. Furthermore, the government is committed to supporting the improved performance of the external sector and the restoration of reserves.
Geopolitical factors, such as rising commodity prices, shipping disruptions, and tighter global financial conditions, pose downside risks to the external sector’s stability.