Current Account Deficit shrinks 45% in July

 The gap between higher foreign expenditure and low income – narrowed down significantly to $1.21 billion in July compared to $2.18 billion in June

Pakistan’s current-account deficit narrowed down significantly by 45% to $1.21 billion in July compared to $2.18 billion in June. The cut in imports and especially in energy imports helped to reduce the current account deficit. The government’s policy to check the imports bring the desired results.

The reduced current-account deficit stands positive to stabilise the dwindling foreign exchange reserves standing at a critically low level, of less than six-week import cover, at $7.89 billion and supporting the rupee against the US dollar.

State Bank of Pakistan (SBP) said on its official Twitter handle, “The current-account deficit shrank to $1.2 billion in July from $2.2 billion in June, largely reflecting a sharp decline in energy imports and a continued moderation in other imports.”

“The narrower deficit is the result of wide-ranging measures taken in recent months to moderate growth and contains imports, including tight monetary policy, fiscal consolidation and some temporary administrative measures.” The current-account deficit at $1.21 billion in July, however, came 42% higher compared to $851 million recorded in the same month of July of last year, according to Central Bank data.

The current-account deficit is estimated to record at less than $1 billion in August and September provided the Central Bank continues to keep a vigilant eye on imports till September 2022. The Central Bank may extend the mandatory requirement for traders to acquire its approval before placing an import order (opening letter of credit or L/C) till December 2022.

The Central Bank has projected a current-account deficit at 3% of GDP ($10-12 billion) for the full current fiscal year 2023. The fall in the global commodity prices and higher tariffs on luxury goods might also help to narrow the current account balance.

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