April 04, 2024 (MLN): The current account deficit is expected to remain low at 0.7% of Pakistan's GDP in FY24 and to further narrow to 0.6% of GDP in FY25 and FY26, according to the World Bank.
This is due to muted expected growth in imports, reflecting weak domestic demand and continued import management measures aimed at preserving the scarce foreign reserves.
The World Bank further highlights that Pakistan’s external financing needs will remain significant throughout the projection period, due to IMF repayments and maturing Eurobonds.
Despite a low CAD, the reserve position is therefore projected to further weaken, reflecting limited external financing.
The current account deficit (CAD) narrowed to $0.8 billion in July–December 2023 (1HFY24) from $3.6bn in 1HFY23 largely due to a substantially smaller trade deficit on account of reduced domestic demand, import management measures, and lower global commodity prices.
Meanwhile, official remittances decreased by 6.8% YoY in 1HFY24 due to exchange rate rigidities earlier in the year.
Reflecting fresh multilateral and bilateral inflows, the financial account ran a substantial surplus leading to a balance of payments (BOP) surplus of $3bn in 1HFY24, compared with a deficit of $4.2bn in 1HFY23.
Consequently, international reserves increased to $9.4bn at the end of December 2023, equivalent to 1.7 months of imports.
With the BOP surplus and regulatory reforms in the foreign exchange market, the rupee appreciated modestly (1.2%) against the US dollar over 1HFY24.
