Cash-starved Pakistan’s current account deficit shrinks 90% to $0.24 billion in January

Troubled Pakistan’s current account deficit shrank 90.2 percent to $0.24 billion in January from $2.47 billion a year earlier, data released by the State Bank of Pakistan (SBP) on Monday showed. “The current account deficit (CAD) recorded $0.2 billion in January 2023 compared to a deficit of $2.5 billion in January 2022,” the central bank said in a brief statement on Twitter.

The decline in the deficit is also 16.55 percent lower than in December, when the SBP announced the deficit was $0.29 billion.

The deficit was recorded as import restrictions remain in place amid a balance of payments crisis that has brought the country to the brink of default, the Dawn newspaper reported.

Pakistan has a chronic balance of payments problem that has worsened over the past year as the country’s foreign exchange reserves have fallen to critical levels. On Feb. 10, the central bank had reserves of just $3.2 billion, enough to cover nearly three weeks of imports.

To curb dollar outflows, the government has imposed restrictions and allowed imports of only essential food and medicines until a lifeline is agreed with the International Monetary Fund (IMF), which is considered essential for the country to stave off a default.

Ismail Iqbal Securities research director Fahad Rauf said the shrinking current account deficit was “not an achievement but a result of low reserves,” the newspaper reported.

However, the government’s strategy of restricting imports to secure reserves has proved a double-edged sword as several industries depend on imported inputs to keep them running. As a result, several companies across all sectors have either shut down operations or reduced production levels, leading to layoffs.

The latest data shows that the country’s current account deficit stood at US$3.8 billion in the first seven months of the current fiscal year, down 67.13 percent compared to July-Jan FY21-22.

Goods worth $3.92 billion were imported in January, down 7.3 percent from the previous month. On the other hand, exports also fell, totaling US$2.21 billion, down 4.29 percent from the previous month’s US$2.31 billion.

Meanwhile, workers’ remittances totaled $1.89 billion, down 9.89 percent from December’s $2.1 billion, the newspaper said.

Aside from exports and foreign credit, Pakistan relies heavily on remittances for its foreign exchange reserves.

Pakistan faces a crippling economic crisis, with decades of high inflation and critically low foreign exchange reserves depleted by ongoing debt service obligations.