EUR 50.00 For Business Accounts Only

Pakistan Economy: Current Account Deficit at 1.1% of GDP in FY20; Jun-2020 in deficit after surplus in May-2020

• Pakistan Current Account (CA) deficit clocked in at US$96mn in Jun-2020 compared to a surplus of US$344mn in May-2020, a deterioration of US$440mn.
• Remittances had increased by US$600mn in Jun-2020 compared to May-2020, however higher deficits on both Balance on Trade in Goods and Services by US$440mn and US$220mn, respectively resulted in a CA deficit for the month. The deterioration in Balance on Primary Income by US$440 also played its part.  
• The Exports of Goods improved by US$321mn (+25% MoM), however Imports of Goods also increased by US$761mn (+27% MoM), resulting in deterioration of Trade Balance. The increase in imports is largely attributable to import of higher quantity of petroleum products and their higher prices.
• The CA deficit settled at US$2.97bn (1.1% of GDP) in FY20 compared to a deficit of US$13.43bn (4.8% of GDP) in FY19, a contraction of 78% YoY.
• In both USD terms and percentage of GDP terms, the CA deficit is at a 5 year low.
• The marked improvement in CA deficit during the year came in on the back of improvement in Trade Balance as Imports of Goods declined by 18% YoY, whereas Exports of Goods fell by 7% YoY.
• During the year, Remittances also increased by 6% YoY to US$23.12bn (more than the Exports of Goods during the year).
• The decline in imports is largely attributable to (1) government increasing import duties to curb the Trade Deficit, (2) a higher PKR/USD, (3) decline in international oil prices and (4) the impact on economic activity due to COVID-19 outbreak.
• The Financial Account also recorded a surplus in FY20 of US$7.7bn owing to US$2.52bn Foreign Direct Investment (+76% YoY) and program loans from multilateral agencies.
• Hence, the overall Balance of Payment recorded a surplus of US$5.30bn during the year compared to a deficit of US$1.50bn last year.
• In the 4QFY20, the quarter most affected by the COVID-19 pandemic, the CA recorded a deficit of US$282mn (0.4% of GDP) compared to 3QFY20 deficit of US$652mn (1.0% of GDP).

Looking forward, we expect the CA deficit to clock in at US$4.0-4.5bn in FY21 (1.5-2.0% of GDP) as COVID-19 related lockdowns and restrictions ease globally and international oil price also trend up.