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Pakistan’s current account deficit shrinks massive 73% in July

Jul 7, 2014
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Contraction comes on back of drop in imports, increase in exports


KARACHI: Pakistan’s current account deficit narrowed a significant 73% to $579 million in July, the first month of the current fiscal year, following the government’s agreement with the International Monetary Fund (IMF) on implementing tough measures for a bailout of $6 billion.

The current account deficit stood at $2.13 billion in the same month of last year, the State Bank of Pakistan (SBP) reported on Tuesday.

“The colossal contraction in the deficit came on the back of…26% drop in imports and 11% improvement in exports,” Arif Habib Limited Head of Research Samiullah Tariq told The Express Tribune.

The desired improvement in the two major heads – imports and exports – was partly achieved after the government implemented reforms under the 39-month IMF loan programme, which started in July. The loan programme binds the government to undertake structural reforms. These included increase in the key interest rate which stood at an eight-year high of 13.25% in July, depreciation of the rupee, which fell 32% to Rs160 to the US dollar in FY19, upward revision in power and gas tariffs and an ambitious tax-collection target of Rs5.55 trillion for the current fiscal year among other tough conditions for steering the economy out of the crisis.

Imports fell significantly in July 2019 after the government made it mandatory to collect the copy of Computerised National Identity Cards (CNICs) at wholesale and retail levels with the objective of increasing the number of tax return filers.

“Implementation of the (tax) policy has significantly impacted imports,” Tariq remarked. “Hike in key interest rate also helped slash imports,” he said.

“Government crackdown on smuggling will help it achieve the tax collection target (of Rs5.55 trillion),” he said. On the other hand, “exports surged after the authorities let the rupee depreciate significantly.”

Besides, the grant of incentives to exporters like provision of subsidised electricity and gas, tax rebate on export growth of up to 6% and a notable increase in food exports also played an important role in increasing shipments from the country, he said.

Moreover, the remittances sent home by overseas Pakistanis came in at $2.03 billion in July compared to $1.98 billion in the same month of last year due to Eidul Azha. The inflows played a very important role in financing the trade deficit and making a foreign debt repayment.

The government has targeted to contain the fiscal year 2019-20 current account deficit at $6.5 billion, as agreed with the IMF, compared to $13.5 billion worth of deficit in the preceding fiscal year.

“The significant drop in the current account deficit in July seems sustainable,” he said, adding that the implementation of the CNIC condition at wholesale and retail levels and a crackdown on smuggling would further improve import and export numbers, he said.

The IMF programme has, however, resulted in a slowdown of the economy to a nine-year low of 3.3% in the fiscal year that ended on June 30, 2019, and pushed inflation into double digits – 10.3% – in July after a gap of 68 months.

SBP Governor Reza Baqir, while addressing Pakistan’s Independence Day gathering on August 14, claimed that the country had taken right decisions for reviving the slowing economy as their implementation had started bearing fruit.

The projects that the economic team of Pakistan was implementing were bringing stability to the country. “If we continue our journey with consistency in the direction we have taken, then we will definitely achieve the destiny of progress and prosperity,” he said.

“Consistency in our policies is our biggest challenge. If there is continuity in policies, I have no doubt that our future is bright,” the SBP governor remarked.

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Published in The Express Tribune, August 21st, 2019.

 

Yaseen1

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I think except china and few other countries most of other strong economies have Current Account deficit so if economic growth increases with decrease in deficit resulting from increase in exports then it will be real economic strength Otherwise Venezuela also not has Current account deficit but its economy is in disaster
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance
 
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Flight of falcon

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Just watch how every idiot with grade 5 economics class back ground will comment and try to find fault with this excellent news .
Anyways economy is going in the right direction for sure and it will be at least a year more worth of painful adjustment before we reach all clear.

Reduction in import if happening in consumer goods part is good but if it involves raw material, machinery etc then it could reflect slow domestic demand and less industrial activity. We have to be careful with that.
 

Syed1.

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Just watch how every idiot with grade 5 economics class back ground will comment and try to find fault with this excellent news .
Anyways economy is going in the right direction for sure and it will be at least a year more worth of painful adjustment before we reach all clear.

Reduction in import if happening in consumer goods part is good but if it involves raw material, machinery etc then it could reflect slow domestic demand and less industrial activity. We have to be careful with that.
I read that imports of machinery grew 11% in July
 

Norwegian

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Aug 19, 2014
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Just watch how every idiot with grade 5 economics class back ground will comment and try to find fault with this excellent news .
Anyways economy is going in the right direction for sure and it will be at least a year more worth of painful adjustment before we reach all clear.

Reduction in import if happening in consumer goods part is good but if it involves raw material, machinery etc then it could reflect slow domestic demand and less industrial activity. We have to be careful with that.
Every country should live in its means. Pakistans total external revenue is 20 billion dollar exports and 20 billion dollar remittances, a total of 40 billion dollars. Additionally Pakistan needs 10 billion dollars a year for external debt servicing. So 20+20-10=30 billion dollars is the total amount Pakistan can use on imports without taking on further debt.
 

Wikki019

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I think except china and few other countries most of other strong economies have Current Account deficit so if economic growth increases with decrease in deficit resulting from increase in exports then it will be real economic strength Otherwise Venezuela also not has Current account deficit but its economy is in disaster
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance
Why don't you give example of germany,

CAD is not a problem "if" you have enough forex reserves or credit lines, not like having 10 billion USD in state bank and have to pay 9 billion dollars for debt repayment.
 

Norwegian

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Why don't you give example of germany,

CAD is not a problem "if" you have enough forex reserves or credit lines, not like having 10 billion USD in state bank and have to pay 9 billion dollars for debt repayment.
He is a Patwari. No need to argue
 

313ghazi

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I think except china and few other countries most of other strong economies have Current Account deficit so if economic growth increases with decrease in deficit resulting from increase in exports then it will be real economic strength Otherwise Venezuela also not has Current account deficit but its economy is in disaster
https://en.wikipedia.org/wiki/List_of_countries_by_current_account_balance
CAD alone is not the problem, it just depends on how much money you actually make.

If I ask you to lend me $50,000 you will think twice. If Bill Gates as you, a part of you will know that he has the money to pay you back. Both of us are asking you for money, but only one of us is a sure bet to have the ability to pay it back. Whether he would or not, that's a different risk assessment.
 

PakGuns

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Just watch how every idiot with grade 5 economics class back ground will comment and try to find fault with this excellent news .
Anyways economy is going in the right direction for sure and it will be at least a year more worth of painful adjustment before we reach all clear.

Reduction in import if happening in consumer goods part is good but if it involves raw material, machinery etc then it could reflect slow domestic demand and less industrial activity. We have to be careful with that.
lol.... rather than attacking just argue that would save you from blood pressure... it is not a victory at any level unless our GDP show some hike... our exports are still there and you have just stopped importing that's supposed to happen..... don't mind if you needed a medicine of xyz company and that firm just stops importing because of decreasing profit margins..

For Info
I am an accountant in a medicine firm..
I know whats happenings around pharma industry same implies for everywhere..
check sudden decrease in profits of suzuki, honda, Toyota that is not consumer behavior that has changed towards alternatives but consumer purchase power because of increasing in prices resulting from higher foreign currency rates
 

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