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Current Account Records A Huge Surplus of Over $800 Million in July-Aug 2020

Morpheus

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Current Account Records A Huge Surplus of Over $800 Million in July-Aug 2020

Posted 1 hour ago by M Yasir

Govt & State Bank Rule Out Further Depreciation of Rupee | propakistani.pk


The current account maintained a surplus for the second straight month with a huge surplus of $805 million from July to August of the current fiscal year 2020-21.
According to data updated by the State Bank of Pakistan, the country reported a surplus of $297 million in August and $508 million (revised figures) in the month of July. Last year, the country recorded a deficit of $1.2 billion in the same period.


The handsome surplus shows stability in external accounts backed by the various measures of the economic managers of the present government. The improvement in the trade bill and the handsome inflows of the remittances contributed to the surplus during the first two months of the current financial year.

The import of goods reduced to $6.73 billion from $7.7 billion and the import of services also decreased to $1.22 billion from $1.81 billion during the period. The reduction of the import bill also supported the balance of payments of the country, helping contain the deficit.

Remittance inflows, on the other hand, reached an all-time high of $4.83 billion in the said period, which ultimately turned the current account into surplus.
Meanwhile, the export of goods stood at $3.42 billion and services stood at $758 million in July and August. The exports declined year-on-year however they slightly picked up on a month-to-month basis as the economic activities are being restored globally and locally.


Commenting on the present positive trend of the current account, SBP said,
Efforts to attract workers’ remittances, flexible exchange rate and relatively benign import prices explain the improving current account balance.
The remittance numbers are still growing while imports are growing slower. It gives confidence to Rupee investors and dispels depreciating expectations, said A.A.H Soomro, Managing Director at Khadim Ali Shah Bukhari Securities. The currency ought to remain stable at Rs. 165 per US dollar, with spacing for appreciation. The slowdown in remittances is imminent as exports ought to compensate for the loss, he added

This is the fourth surplus of the current account reported by the present government. Previously, it reported a surplus of $508 million in July 2020, $13 million in May 2020, and a surplus of $99 million in October 2019 after a four-year gap.

It is expected that imports and exports of goods and services may witness a gradual growth in months to come, though the government should focus to contain the import bill and enhance exports along with remittances to maintain the positive trend of current account surplus, which is indeed a herculean task.

Due to the huge value of surplus, it is likely the first quarter of the financial year will close in surplus which will also be a record in the history of the country.
Going forward, in the first half of FY21, a recovery is expected from the devastations of Monsoon rains in the country. With the improving consumer demand in the west along with the Asian countries, Pakistan’s exports will increase which may turn out to be the crucial factor for currency parity and FX reserves in the country.

As the State Bank of Pakistan has recently kept the Real Rates of Interest near zero %, this may likely increase the chances of higher interest rates in the upcoming monetary policies mainly on the likely increase in inflationary pressures along with the induced pressure by the IMF authorities.

The increasing foreign inflows (due to the expats coming to Pakistan along with the newly launched Roshan Digital Account) may likely improve currency parity for a short period of time.

---------------------

@Pan-Islamic-Pakistan @Verve @The Accountant @Patriot forever
 

Musings

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Excellent set of results. Even with the veil of COVID - the economy shows signs of stability and strength. To be honest i didn't think the titanic would start turning round as quick as this but IK is being shown faith - especially by ex pats. Heartening to see.
 

Verve

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Current Account Records A Huge Surplus of Over $800 Million in July-Aug 2020

Posted 1 hour ago by M Yasir

Govt & State Bank Rule Out Further Depreciation of Rupee | propakistani.pk


The current account maintained a surplus for the second straight month with a huge surplus of $805 million from July to August of the current fiscal year 2020-21.
According to data updated by the State Bank of Pakistan, the country reported a surplus of $297 million in August and $508 million (revised figures) in the month of July. Last year, the country recorded a deficit of $1.2 billion in the same period.


The handsome surplus shows stability in external accounts backed by the various measures of the economic managers of the present government. The improvement in the trade bill and the handsome inflows of the remittances contributed to the surplus during the first two months of the current financial year.

The import of goods reduced to $6.73 billion from $7.7 billion and the import of services also decreased to $1.22 billion from $1.81 billion during the period. The reduction of the import bill also supported the balance of payments of the country, helping contain the deficit.

Remittance inflows, on the other hand, reached an all-time high of $4.83 billion in the said period, which ultimately turned the current account into surplus.
Meanwhile, the export of goods stood at $3.42 billion and services stood at $758 million in July and August. The exports declined year-on-year however they slightly picked up on a month-to-month basis as the economic activities are being restored globally and locally.


Commenting on the present positive trend of the current account, SBP said,

The remittance numbers are still growing while imports are growing slower. It gives confidence to Rupee investors and dispels depreciating expectations, said A.A.H Soomro, Managing Director at Khadim Ali Shah Bukhari Securities. The currency ought to remain stable at Rs. 165 per US dollar, with spacing for appreciation. The slowdown in remittances is imminent as exports ought to compensate for the loss, he added

This is the fourth surplus of the current account reported by the present government. Previously, it reported a surplus of $508 million in July 2020, $13 million in May 2020, and a surplus of $99 million in October 2019 after a four-year gap.

It is expected that imports and exports of goods and services may witness a gradual growth in months to come, though the government should focus to contain the import bill and enhance exports along with remittances to maintain the positive trend of current account surplus, which is indeed a herculean task.

Due to the huge value of surplus, it is likely the first quarter of the financial year will close in surplus which will also be a record in the history of the country.
Going forward, in the first half of FY21, a recovery is expected from the devastations of Monsoon rains in the country. With the improving consumer demand in the west along with the Asian countries, Pakistan’s exports will increase which may turn out to be the crucial factor for currency parity and FX reserves in the country.

As the State Bank of Pakistan has recently kept the Real Rates of Interest near zero %, this may likely increase the chances of higher interest rates in the upcoming monetary policies mainly on the likely increase in inflationary pressures along with the induced pressure by the IMF authorities.

The increasing foreign inflows (due to the expats coming to Pakistan along with the newly launched Roshan Digital Account) may likely improve currency parity for a short period of time.

---------------------

@Pan-Islamic-Pakistan @Verve @The Accountant @Patriot forever
Excellent news. InshaAllah with this trend, next year the benefits will start trickling down to the public.
 

Yaseen1

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due to covid19 rich politician and other people who used to visit foreign countries for tourism and wasted foreign reserves has declined which is one of the major cause of surplus among with reduction in imports and decrease in money laundering resulting from restricted mobility across foreign countries due to pandemic
 

Wikki019

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due to covid19 rich politician and other people who used to visit foreign countries for tourism and wasted foreign reserves has declined which is one of the major cause of surplus among with reduction in imports and decrease in money laundering resulting from restricted mobility across foreign countries due to pandemic
The handsome surplus shows stability in external accounts backed by the various measures of the economic managers of the present government
 

Yaseen1

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The handsome surplus shows stability in external accounts backed by the various measures of the economic managers of the present government
measures are very difficult to be implemented in country like Pakistan where institutions are weak,I think it is mainly due to pandemic and supranational causes although govt measures can decrease deficit but running surplus seems temporary
 

Jungibaaz

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Where are the worshippers of papa Nawaj Chayreef??? @volatile @Jungibaaz @Tameem
First off, I'm no blind partisan, where this government is doing what's right, I have backed them.

Secondly, this surplus is good I agree, but we're in a covid crisis right now. Surpluses and smaller deficits are being had everywhere, quite a few countries are recording record surpluses. The reason for this is not necessarily good. It could be that exports are barely growing, while imports have decreased and their prices have fallen. Take this article as an example from Vietnam, see what experts there say about their record surplus. Also a shrinking import bill on the back of very little or no growth is a sign of concern, not something to immediately celebrate. I explained the possible dynamics behind this in this post here.

Here are some examples of me backing this PTI government when they were right on the policies needed to mitigate the current account crisis we had:


Someone should ask Khwaja Asif why under the last two years of his governments watch did the ballooning of twin deficits begin? And why the unsustainable policy of overvalued PKR and use of reserves to loosely peg was employed.

The current government isn’t great, but it’s doing about as much as they or PPP would have done under the circumstances. And certainly they are not to blame for the current financial crisis. The real test for PTI is which state they leave the economy in (not counting bad luck), whereas the previous government left a mess that needed to be cleared up.
I don't blame this government, tough measures need to be taken now and for the next five years so that we aren't another IMF basket case in 2023. Taxes need to be raised, credit expansion checked, energy prices will rise, pkr will be kept weak, both deficits of the government budget and the current account balance need to be reduced, and important economic reforms will need to be taken.
Had painful measures to reign in excesses and stabilise current account bleed been had earlier, we might not have needed an IMF bailout today and we might well have had more room for sustainable GDP growth north of where forecasts are now.
So stupid, Asad Umer was doing great. I was already warning people that what Asad Umer was doing and what he needed to do would not be popular, but it would save us from future pain. Now he’s gone, I hope they don’t put a compliant incompetent in his place.
And there are even examples of me criticising the state of the economy well before the election and some policy decisions that I thought were wrong from PML. So as I said, I am no blind partisan, thanks.

Back to the subject at hand. Even so with this surplus, let's not celebrate too soon, covid crisis is not over. Our previous financial crisis might be drawing down thanks to some tough but necessary measures taken by this government, but we are not there yet. And also, our economy is not right now built to sustain surpluses. Healthy surpluses come from booming exports, not starving yourself of imports.
 

Syed1.

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due to covid19 rich politician and other people who used to visit foreign countries for tourism and wasted foreign reserves has declined which is one of the major cause of surplus among with reduction in imports and decrease in money laundering resulting from restricted mobility across foreign countries due to pandemic
That is the worst logic I've ever seen.
 

CrazyZ

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A friend of mine told me a large American retailer placed a big order for textiles from Pakistan for the first time in over a decade. Exports may continue to grow due partly good timing and partly to good policy. Western retailers are looking to diversify their suppliers, plus after PKR devaluation, Pakistan is very competitive.

We stabilised in past BOP crisis cycles as well using remittencies and low hanging exports. Now comes the hard part. Investing these gains for better future growth.
 

bête noire

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Back to the subject at hand. Even so with this surplus, let's not celebrate too soon, covid crisis is not over. Our previous financial crisis might be drawing down thanks to some tough but necessary measures taken by this government, but we are not there yet. And also, our economy is not right now built to sustain surpluses. Healthy surpluses come from booming exports, not starving yourself of imports.
While that kind of thinking in and of itself is correct but in the context of current Pakistan economy, that isn't so. Import of Pakistan is more than twice of its export. Growing export takes a lot of time and with your line of thinking, while export grows, import won't just stay and wait for export to catch up. Even if export grows by 8% a year and import grows by 4%, import would still grow faster in raw numbers. It'll take many years for parity and Pakistan's financial problem is immediate. The only viable solution is rapidly curbing imports.

It seems to me that covid is blessing in disguise for Pakistan and terrible for everyone else. Since covid did a lot of favour for the PK government with curbing imports rapidly and creating surplus's, which are great to stabilise Pakistan's economy. While for the rest of the world, curbing import is not needed so it is bad news for them but it is great for PK.

I'm ignoring remittance though. But you also have a lot of debt repayments which I'm sure are no where near the amount of remittances PK receives.

Hope Pakistan can get back on its feet by the end of the pandemic, although that is hoping for way too much. But at least PK can be in a better situation than it were before covid.
 

Jungibaaz

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While that kind of thinking in and of itself is correct but in the context of current Pakistan economy, that isn't so. Import of Pakistan is more than twice of its export. Growing export takes a lot of time and with your line of thinking, while export grows, import won't just stay and wait for export to catch up. Even if export grows by 8% a year and import grows by 4%, import would still grow faster in raw numbers. It'll take many years for parity and Pakistan's financial problem is immediate. The only viable solution is rapidly curbing imports.
I'm not saying that this isn't the case, I'm saying that celebrating a surplus in these conditions is not fitting, not when in normal conditions you do not have the kind of economy that can sustain surpluses. It's clear that surpluses in a lot of countries are occurring where previously they had deficits. The underlying conditions causing this are not positive, even if in a limited scope they can be positive for a country who has gone through a forex/current account crisis.

Basically, we can't celebrate this in the same way as say, over the course of 5-10 years we build export industries while slowly tapering off excess imports and bad policies that land us into cycles of IMF bailouts. If there is something to celebrate, it's that low import prices have come a little after we made it our objective to rapidly cut imports to stave off the crisis. If any proportion of it is owing to slow economic activity, then it's nothing to celebrate at this time.

Some nuance is needed, I'm not saying it's a bad thing per se, but it doesn't need to be celebrated for all the wrong reasons either.

It seems to me that covid is blessing in disguise for Pakistan and terrible for everyone else. Since covid did a lot of favour for the PK government with curbing imports rapidly and creating surplus's, which are great to stabilise Pakistan's economy. While for the rest of the world, curbing import is not needed so it is bad news for them but it is great for PK.

I'm ignoring remittance though. But you also have a lot of debt repayments which I'm sure are no where near the amount of remittances PK receives.

Hope Pakistan can get back on its feet by the end of the pandemic, although that is hoping for way too much. But at least PK can be in a better situation than it were before covid.
Fully agree here, it's been a blessing for us. Very few cases (recorded), few deaths (estimated). Economic impact has been soft compared to those countries which recorded gigantic record recessions. And we managed that without spending much at all on economic stimulus (not like we had a choice, but hey, it's still positive).

And also... countries in the west are gearing up for another lockdown, winter blues and more covid related disruption. If we survive the winter with equally minimal cases and economic impact. We'll be doing leagues better than most countries. It's sort of like.. if pre-covid Pakistan was limping slowly in a race. All the other athletes are now on the ground suffering incredible pain, we haven't got any faster, we're still limping, but we're gaining ground in the race as a result. :D
 

CrazyZ

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We'll be doing leagues better than most countries. It's sort of like.. if pre-covid Pakistan was limping slowly in a race. All the other athletes are now on the ground suffering incredible pain, we haven't got any faster, we're still limping, but we're gaining ground in the race as a result. :D
I pointed this out on PDF at the start of the crisis. Our exports were low (as a percentage of GDP), tourism isn't a big industry in Pakistan, our private sector debt was low, and government was focused on economic competitiveness to boost exports. Pakistan was braced for impact due to the BOP crisis before the pandemic that hurt others much more.

The hard part is now. Investing gains for future growth. Investing gains for long term growth. We done a bad job on this after previous BOP cycles. We have preferred to burn the forex and boost growth through import based consumption and head back to the IMF. We must break the cycle.
 

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