However, the significant reduction in the current account deficit came at the expense of economic growth.
The country’s industrial output has begun to suffer as a result of the forced reduction in imports, with some units closing. According to recent reports, export earnings are also slowing.
According to the State Bank of Pakistan (SBP), the current account deficit stood at $1.21 billion in July 2022.
The current account deficit fell by 19% to $1.91 billion in the first two months of the current fiscal year 2023, compared to $2.37 billion in the same period last year.
“The drop in deficit in the single month of August and cumulatively in the first two months is achieved “mainly due to increase in exports by $0.5 billion and contraction in imports by $0.2 billion [in two months],” the central bank wrote on its official Twitter handle.
The significant increase in export earnings of $533 million month on month to $2.81 billion in August of this year was reportedly due to a bleak outlook for the US dollar against the local currency in the country’s interbank market.
It should be noted that most Pakistani exporters did not request payment from their global buyers in the previous couple of months, i.e. June-July 2022.
They had decided not to sell dollars in the interbank market, instead waiting for the rupee to fall as far as it could against the US dollar.
Later, when the rupee resumed a partial recovery drive in August after losing 13.75% (or Rs29) in 10 consecutive working days to a record low closing at Rs239.94 on July 28, 2022, they aggressively sold US dollars.
Exporters typically wait for a favorable time to sell dollars because they have a 90-day window to collect their export proceeds from global buyers.
Second, a strong 8% increase in worker remittance inflows to $2.72 billion in August compared to July helped the current account deficit narrow in the month.
Third, imports have decreased primarily as a result of a complete ban on non-essential and luxury items, while an aggressive slowdown in essential imports through administrative control has also played an important role in reducing the current account deficit. The significant reduction in the current account deficit in August exceeded market expectations.
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