In what seems a troubling sign for the already struggling economy, Pakistan in November recorded a whopping $1.9 billion deficit in its current account—the highest in the last 40 months—as the authority struggled to contain ballooning import bills, which outpaced growth in exports and inward remittance flow. 

In the same month, the trade deficit reached a record $ 5 billion, amid a widening gap between import and export plus remittances.

The country’s current account deficit (CAD) increased by around 8.5 percent in November in comparison to October when it recorded a $1.76 billion deficit, showed the data released by the country’s central bank, the State Bank of Pakistan. 

The CAD projection, however, is still lower than earlier estimates as many had initially expected it to cross $2 billion. In the same month, the country’s import bills were reported around $6.45 billion by the central bank—contrary to $7.92 earlier reported by Pakistan’s Bureau of Statistics. 

Significantly, record import bills came despite the government imposing certain import control measures. 

A crisis was averted two weeks ago, when Saudi Arabia, one of the country’s close allies, extended $3 billion in loans, helping it manage the crisis becoming worse by the day. 

Additionally, the authorities are in touch with the International Monetary Fund (IMF) for the revival of the $6 billion bailout package.  A staff-level agreement has already been agreed between the  IMF and the government. Once approved by the IMF board, Pakistan would be able to access $1 billion of its total $6 billion package. 

In the last fiscal (FY 21, which ended in June), the trade deficit widened by 32.9 percent, posting around $30 billion difference between imports and exports. In July, the first month of the current fiscal, it was around $ 3 billion, only to increase to $4.05 billion in August. 

Overall, in the first quarter of the current fiscal year, July-Oct 2021, the trade deficit stood at $15.525 billion--registering an increase of 103.8 percent from $7.617 billion it had recorded last year during the same period. 

Pakistan recorded the highest trade deficit in FY18, close to $37 billion. That record may be broken this year if the trend continues like this—that, however, would be an extremely difficult situation for Pakistan. 

So far remittances from nonresident Pakistanis have helped manage the trade deficit. However, in the long run, the growth in the trade deficit would certainly surpass the limit beyond which it could not be managed by remittance. 

(SAM)