Pakistan's current account deficit rises to 4-year high of $17.4 bn in FY22

Pakistan's current account deficit (CAD) increased to a 4-year high of USD 17.4 billion in the fiscal year of 2021-22, indicating more troubles for the ailing economy of the cash-strapped country.

The State Bank of Pakistan (SBP) on Wednesday reported that the country recorded a CAD of USD 17.406 billion in FY22 compared to a gap of just USD 2.82 billion in FY21.

According to Dawn newspaper, the massive CAD speaks a lot about the severe problem of the balance of payments. The deficit of over USD 17.4 billion is more troubling in the wake of no inflows as loans while the commercial markets are not ready to accept Pakistan's bonds due to higher risks.

The current account deficit has exceeded the SBP's projection for the deficit in FY22. The CAD increased to 4.6 per cent of GDP in FY22, up from 0.8 pc in FY21.

In November 2021, the SBP issued its Annual Report and said the current account deficit is projected in the range of 2pc to 3pc of GDP during FY22.

Reports appearing in local and foreign media suggest that Pakistan can't unlock the dollar inflows until the International Monetary Fund executive board approves its staff-level agreement reached on July 15.

Finance Minister Miftah Ismail has been hinting at an early deal with the IMF, but with the passage of time, the trust deficit is rising; the currency market reflects the trust deficit by depreciating the local currency on a day-to-day basis.

The CAD in June FY22 was much higher than in May as it rose to USD 2.275 billion in June compared to USD 1.430 billion in May. The CAD in June FY21 was USD 1.637 billion.

"A surge in oil imports saw CAD rise to USD 2.3 billion in June despite higher exports and remittances, the SBP tweeted on Wednesday. "So far in July, oil imports are much lower and the deficit is expected to resume its moderating trajectory, it added.

The central bank said 3.3 million tonnes of oil were imported in June, a 33pc increase over May.

"Together with higher global prices, this more than doubled the oil import bill from USD 1.4 billion to USD 2.9 billion. By contrast, non-oil imports ticked down, said the SBP.

The higher oil import bill was held for a higher current account deficit in June, but the entire fiscal year noted a very high current account deficit as the second quarter noted the biggest deficit of USD 5.565 billion.

Further details showed that exports of goods in FY22 were USD 32.45 billion while service exports were USD 6.97 billion.

The imports of goods were USD 72.05 billion, while the imports of services were USD 12.14 billion. The balance of trade in goods and services showed a net deficit of USD 44.77 billion in FY22 compared to USD 31.15 billion a year ago.

The ongoing fiscal year will face a tough time with poor inflows and higher outflows while the economic growth rate will be half of the growth achieved in the previous fiscal year, the paper said.