The current account deficit doubled in March to DKK 1 billion. USD – Avis

KARACHI: The country’s balance of payments deficit nearly doubled in March to $ 1 billion compared to the previous month, bringing the total gap over the first nine months (July-March) of the current fiscal year to over $ 13 billion.

The latest data released by the State Bank of Pakistan (SBP) on Saturday may come as a shock to the new government, which is in talks with the International Monetary Fund on the release of 1 billion.

Since the beginning of the current financial year, the government has failed to control the rising trade deficit, leading to higher current account deficits.

“Despite high global commodity prices, the balance of payments reversal continues with a $ 1 billion deficit in March, $ 500 million lower than the FY22 average. In addition, the non-oil balance remained in surplus for the second month in a row,” SBP said in a Twitter post. .

New government may find it challenging to halt rising CAD amid rising trade deficits

The current account balance – which measures the flow of goods, services and investments in and out of the country – was in a deficit of DKK 13.169 billion. USD in July-March against 275 mill. USD a year ago.

The State Bank reported that import growth was 41.3 per cent during the nine months compared with a growth of 11.5 per cent. in the same period last year.

Imports of goods and services cost a total of DKK 62.137 billion. USD in July-March compared to exports of 28.855 billion. USD. Rising imports widen the trade deficit and ruin the exchange rate as demand for dollars remained abnormally high in the current fiscal year.

Quarterly data show that the current account deficit was $ 3.526 billion. in July-September, $ 5.565 billion. in October-December and $ 4.078 billion. in January-March, averaging about $ 4.4 billion. pr. quarter. That means the deficit could reach $ 17.5 billion. at the end of the financial year.

The previous government tried to reduce the import bill by imposing higher tariffs on imports, especially on luxury goods.

However, it did not succeed due to rising global oil prices. Pakistan paid over $ 14 billion to import oil products in the period July-March, almost double the oil import bill a year ago.

The State Bank reported that the balance on trade in goods and services in July-March was in a deficit of 33.276 billion. USD compared to the deficit of 21.292 billion.

These twin deficits would keep the new government restless, while requiring more measures to get the situation under control.

A steep decline in SBP-led foreign exchange reserves – currently at $ 10.8 billion. – enables speculators to destabilize the exchange rate.

In addition, to halt galloping inflation, interest rates were recently raised by 250 basis points to 12.25%, and a further increase is expected.

Published in Dawn, April 24, 2022

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