CAD continues to shrink to stand at a 28 month low

March 19, 2019 (MLN): The Current Account Deficit (CAD) stands at a 28 month low at the end of February 2019, as the State Bank of Pakistan recorded it at $356 million which is 59% smaller than the deficit recorded in January 2019 ($873 million). 

This contraction is driven by the balance of trade in goods and services which improved by 21% on account of noticeable decline in imports. The import of goods narrowed down by 20%, MoM whereas the import of services declined by 8.9%, mirroring a general slowdown in economy.

The improvement in trade deficit could have been better had it not been for a noticeable decline in exports. (18% decline in exports of goods and 9.9% decline in exports of services).

Mr. Umer Farooq at AKD Securities points out the role of what he calls the “February Effect”, explaining that CAD usually witnesses sequential moderation in the month of February every year.

Another main component that contributed in improving the CAD is the deficit in primary income which shrank by nearly 40% to stand at $307 million, down from $511 million in January.

Similarly, the deficit in secondary income declined by 9% over the month as SBP recorded the figure at $1.8 billion in February, against $1.9 billion previous month.

Moving on, the net incurrence of liabilities came down from $1.96 billion to only $233 million, marking a negative change of 88% over the month.

On the other hand, the overall deficit for July – Feb FY19 declined by 22.6% over the year as it currently stands at $8.8 billion against last year’s cumulative deficit of $11.4 billion.

The improvement in cumulative CAD is majorly attributed to the 11.8% increase in Workers’ Remittances which grew by over $1.5 billion over the year to reach $14.35 billion.

The largest contribution came from workers in Saudi Arabia, an amount of $3.3 billion up by 2% over the year. Other major contributors were workers residing in UAE ($3 billion) and USA ($2.2 billion).

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