Current account deficit swells to $9.09b in first half of current fiscal year

ISLAMABAD - Pakistan’s current account deficit has widened to $9.092 billion in first half (July to December) of the current fiscal year, which is putting pressure on the foreign exchange reserves which are decreasing sharply.
The CAD was recorded at $9.092 billion in July to December period of the year 2021-22 as compared to $1.247 billion in the corresponding period of the previous year. Pakistan’s exports were recorded at $15.236 billion as against $36.412 billion imports. Foreign remittances were recorded at $15.808 billion in first half of the current fiscal year. The current account deficit (CAD) rose to $1.93 billion in December’21 from $1.89 billion in Nov’21, according to the latest data of the State Bank of Pakistan.
Pakistan’s foreign exchange reserves are decreasing sharply due to the repayment of previous loans as well as financing of the current account deficit. The State Bank of Pakistan (SBP)’s held foreign exchange reserves have declined by slightly above $3 billion since August 2021. In just one week time, reserves have declined by $562 million mainly on account of international debt servicing. Reserves held by the SBP have decreased to $17 billion. Meanwhile, the reserves would further come under pressure in the next six months as Pakistan has to repay $8.7 billion in the second half of FY 2022.
The economic experts believed that controlling current account deficit is one of the major challenges for the incumbent government. They said that oil prices have started to increase in international market, which would put further pressure on the imports and thus widening of current account deficit. They recommended the government to tax the non essential commodities to control the soaring imports of the country.
Renowned economist Dr Ashfaq Hasan Khan has asked for adopting ‘aggressive and yet selective import policy’ to control the soaring trade deficit of the country. “How will you control the import bill when you are importing luxuries vehicles, mobile phones, eatables commodities and others?” Import bill would definitely go up when you are even importing food for pets. He further said that imports have started increasing with the same speed. When contacted, Dr Khaqan Najeeb, former advisor, Ministry of Finance, said government needs to be highly vigilant about Pakistan’s external financing requirements. These requirements include short, medium and long term debt of the country due during a fiscal year, plus the current account deficit. External financing requirement for Pakistan is likely to exceed $28 billion for FY2022. In addition there is also the Chinese safe deposit of $ 4 billion which needs to be rolled over.
Dr Khaqan highlighted some concerns going forward based on the analyses of the external data for the first half of FY22. Debt repayment for the second half is much higher than what has been paid in the first six months. The much higher repayment of debt liabilities of $8.7 billion in the second half of FY 2022 can put pressure on the country’s balance of payments and the exchange rate.
He said considering the external needs, Pakistan’s ability to complete IMFs 6th review is thus crucial for securing the $1 billion and for access to other creditors. Dr. Khaqan, while commenting on the current account deficit, explained that it had become larger than initially anticipated. Current account deficit of near to 5 percent of GDP in FY2022 will be the largest deficit after FY 2018. 
Dr Khaqan concluded by pointing out two other areas of concern for balance of payments. One price of Brent (oil) has bounced back beyond $ 86 with some analysts pointing to a rising trend. Two, rising demand on the food and related items continue to hike the import bill like the recent import of urea. These trends could exert pressure on the country’s balance of payment with serious implications on level of foreign exchange reserves and the exchange rate in the country. He felt sound monitoring by the govt and taking timely remedial steps could help.

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