CAD declines to $2.2 billion in 1st Quarter

ISLAMABAD, Nov 2 (APP):The Current Account Deficit (CAD) declined to $ 2.2 billion during the first quarter (Q1) of the current fiscal year as compared to the deficit of $3.5 billion recorded during the corresponding period (July-September) of the fiscal year 2021-22.

The CAD mainly contracted due to increase in exports and contraction in imports during July-September (2022-23), according to latest financial data released by finance ministry.

During the month of September 2022, the current account deficit shrank to $ 316 million as against $ 676 million in August 2022, largely reflecting an improvement in trade balance, according to the monthly Economic Update and Outlook October 2022 released by the Ministry of Finance.

Exports on free on board (FOB) grew by 5.5 percent during July-September FY2023 and reached $ 7.6 billion ($ 7.2 billion last year).
Imports on FOB declined by 7.9 percent during July-September FY2023 and reached $ 16.0 billion ($ 17.4 billion last year).

Resultantly the trade deficit during July-September FY2023) reached to $ 8.4 billion as against $ 10.2 billion last year.

As per PBS, during July-September FY 2023, exports increased by 2.6 percent to $ 7.2 billion ($ 6.9 billion last year).

On YOY basis exports increased by 1.5 percent to $ 2.44 billion in September 2022 as against $ 2.40 billion in September 2021.

The major export commodities which have shown growth during the review period include readymade garments (5.8 percent in value and 39.7 percent in quantity), cotton cloth (4.2 percent in value despite 22.7 percent decline in quantity), knitwear (15.4 percent in value & 64.6 percent in quantity), carpet, rugs and mats ( 13.8 percent in value and 11.6 percent in quantity) foot wear (27.1 percent in value and 68.8 percent in quantity ), foot balls (59.1 percent in value and 59.0 percent in quantity) and others rice (0.8 percent in value despite a decline of 2.0 percent in quantity).

The total imports in July-September FY2023 decreased to $ 16.4 billion ($ 18.7 billion last year), thus declined by 12.4 percent.
The main commodities imported were petroleum products ($2388.7 million), medicinal products ($ 372.3 million), petroleum crude ($ 1355.0 million), liquefied natural gas ($ 969.8 million), palm oil ($ 1135.7 million), plastic materials ($ 658.8 million) and iron & steel ($ 520.8 million).

Meanwhile, according to the report, the trade balance of Pakistan is expected to improve in the coming months on account of import contraction due to a deceleration in domestic economic activities and aggregate demand.

“Overall economic outlook shows an optimistic picture of the economic performance in the coming months. The CPI inflation is declining, the rupee has gained stability, and the current account balance is on improving trend. These developments indicate that economic activity will remain positive and persistent in coming months”, the report added.

It said for the future path of inflation, the exchange rate is of utmost importance. Moderating inflation also contributes to exchange rate stability, which in the benign case may generate a virtuous inflation-exchange rate cycle. Further, exchange rate stability requires sound economic fundamentals.

Besides inflation, also a manageable current account deficit and guaranteed financing of this deficit by healthy financial inflows are required. When markets get convinced about these prospects, speculative bubbles in the exchange market would be highly unlikely.