By Muhammad Soban

ISLAMABAD, August 2, (INP-WealthPK): The current account deficit of Pakistan soared to a four-year high of $17.4 billion at the end of the previous fiscal mainly owing to an increase in the global commodity prices, WealthPK reports.

The increase in international commodity prices and changing situation around the world have been badly affecting the economy of Pakistan like other developing countries, according to the statistics released by the State Bank of Pakistan.

In the fiscal year 2021-22, the central bank of the country reported a six-fold increase in its current account deficit (CAD) from $2.82 billion in the prior financial year. Pakistan’s CAD reached an all-time high of $19.20 billion in 2018. The deficit surged once again in 2022, reaching $17.40 billion, the second highest level in the country's history, after a four-year hiatus.

On a monthly basis, CAD soared to a five-month high of $2.30 billion in June 2022, 59 percent higher compared to the previous month and 40 percent more than the same month of the last year.

According to WealthPK research, for the last 10 years, the average current account deficit has been 2.5 percent of Gross domestic product (GDP). Due to the widening current account deficit, rapidly depleting foreign reserves and domestic political instability, the rupee has depreciated sharply, leading to increase in import bill. The rupee has wilted by 33 percent since the beginning of the current year.

To wipe out the country’s chronic current account deficit, Pakistan has revived the International Monetary Fund’s bailout package. The government and the State Bank of Pakistan have tightened their policies by cutting expenditure and increasing the interest rate, respectively, to decrease the country’s deficit.

The State Bank of Pakistan predicted that current account deficit will fall to three percent of GDP in the current fiscal year. The global rating agencies expect the current account deficit to reach 3.5 to 4 percent of GDP this year.

Dr Mahmood Khalid of Pakistan Institute of Development Economics told wealthPK that increasing demand enhanced the country’s vulnerability to external shocks as a result of the deficit size. With the IMF loan programme on track, the SBP is confident that the country will be able to comfortably meet its financing needs for the upcoming 12 months.

Tahir Abbas, head of research at Arif Habib Limited (AHL), said that an increase in imports of services and a record high energy import bill contributed to the widening of the CAD during June and throughout the financial year 2021-22.

“Hajj and Umrah were resumed this year, and other international travel increased the services trade deficit in 2022 to $5.18 billion from $2.50 billion in last year,” he told WealthPK.

Tahir Abbas pointed out that higher energy and food prices in global market and the import of Covid-19 vaccines worth around $4 billion were the main factors that widened the current account deficit.

As a result of the measures taken by the government to cool down the overheated economy, the current account balance could turn around in July 2022 and show a surplus before falling to $6 billion to $8 billion by the fiscal year 2023.

Credits: Independent News Pakistan—Wealthpk