Pakistan records current account surplus for third month in a row

By
Erum Zaidi
A general view of a container terminal is seen at Mundra Port, one of the ports handled by Indias Adani Ports and Special Economic Zone Ltd, in the western Indian state of Gujarat April 1, 2014. — Reuters
A general view of a container terminal is seen at Mundra Port, one of the ports handled by India's Adani Ports and Special Economic Zone Ltd, in the western Indian state of Gujarat April 1, 2014. — Reuters 

  • Pakistan posted a surplus of $255 million in May. 
  • "Lower trade deficit supported current account," analyst says.
  • Despite surplus, balance of payments situation remains precarious.


KARACHI: Pakistan — for the third consecutive month — posted a current account surplus in May due to an increase in exports, The News reported citing data released by the State Bank of Pakistan (SBP).

The country posted a surplus of $255 million in May up from $78 million recorded in April as the country's trade deficit narrowed due to import restrictions. In addition, exports rose significantly this time around.

Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said: "The lower trade deficit has supported the current account balance."

In the same month of last year, the country recorded a deficit of $1.5 billion.

Fahad Rauf, head of research at Ismail Iqbal Securities, said the current account surplus exceeded expectations.

"The trade deficit came in at $1.2 billion, compared to $2.1 billion reported by the Pakistan Bureau of Statistics," he said. "Both exports and remittances were better than the PBS numbers."

"The increase in the surplus on a month-on-month basis was mainly due to higher goods exports, which rose to $2.6 billion from $2.1 billion in April," he added.

However, imports rose by 3% month-on-month to $3.8 billion in April. Imports fell by 33% year-on-year in April.

Remittances fell by 13% to $24.8 billion in the 11 months of the current fiscal year. These inflows fell by 10.4% year-on-year to $2.1 billion in May. There was a 4.4% month-on-month decrease in remittances.

The country's current account deficit for the 11 months (July to May) of the current fiscal year was $2.9 billion, which was 81% lower than the $15.2 billion deficit for the same period last year.

Despite the current account surplus, the overall balance of payments situation remains precarious, with foreign exchange reserves of $4 billion— enough to cover one month's worth of imports — which are still at low levels.

The International Monetary Fund's (IMF) criticism of Pakistan's recent budget is a sign that there is a growing possibility that the lender will decide against providing long-awaited assistance before its bailout programme expires at the end of June. This would likely lead to a significant dollar shortage in the first half of the fiscal year, which begins in July.

The government currently has $4 billion in foreign exchange reserves. These reserves will fall by the end of June without IMF assistance, as there is at least $900 million in debt that needs to be repaid this month.

Pakistan must make additional repayments totalling $4 billion (which cannot be carried over) between July and December. By the start of the fiscal year in 2024, foreign exchange reserves will likely fall below $4 billion, making default quite likely. The options for new external funding would presumably be quite limited in the absence of any IMF programme.