For the first time in 4 years Current account rises into surplus

[Will_Bite]

For the first time in 4 years

Not Imran Khan...
not the establishment
not Hafeez Sheikh
not Hammad Azhar

but thank you Asad Umar. We are still reaping the benefits of the decisions you made during your short tenure as Finance Minister. I would like to see you back. Your removal was Imran Khans worst decision to date, in my books.

KARACHI: The country posted $99 million current account surplus in October after a gap of more than four years indicative of the recovery from long-prevailing deficits but the four-month current account position still showed a deficit of $1.5 billion.

The latest data released by the State Bank of Pakistan (SBP) showed the government has succeeded in bringing down the current account deficit.

The country’s current account deficit, in the last fiscal year, clocked in at $12.75bn, down 36 per cent from record-high $19.9bn in FY18.

The data for October showed the current account was positive 99m against a net deficit of $1.28bn in the same month of previous fiscal year.

During the cumulative July-Oct period, the current account deficit reached to $1.474bn compared to $5.6bn last year. The deficit sharply reduced in the last four months reflecting significant improvement on the economy’s external front.


The details showed the deficit fell drastically due to sharp decrease in imports, which fell to $14.65bn from $19bn in the same period last fiscal year. However, exports of goods increased to $8.22bn compared to $7.9bn in the last fiscal year.


Subsequently, trade deficit fell to $6.4bn compared to $11bn during the period under review. However, trade of services during the period under review did not show any significant change when compared to same period last fiscal year.

Exports of services during the four months clocked in at $1.749bn compared to $1.709bn during last fiscal year. Imports of services, on the other hand, reached to $3.117bn compared to $3.076bn in FY18.

The trade deficit in services clocked in at $1.368bn compared to $1.367bn in the same period last fiscal year.

During the current fiscal year, rising inflows have helping the government improve its foreign accounts. In the first four months, the FDI jumped by 238pc. The equity market is also receiving foreign investment while the government’s security papers have received investment of around $800m.

The surplus in October and narrowing of four-month current account deficit was mainly achieved due to a massive cut in the imports’ bill. The government is facing criticism that the massive decline in imports have slowdown overall economic activities which would ultimately hit the GDP growth rate.

Recently, the SBP governor said the fall in current account deficit is a big achievement for country and is a sign of macroeconomic stability.

 

[GreenMaple]

Can you explain exactly what steps AU took that have contributed to this CA surplus?

 

[Will_Bite]

Can you explain exactly what steps AU took that have contributed to this CA surplus?

Reducing Imports drastically.
Increasing Exports (even though that was not that drastic)
and most importantly, standing up to the IMF in the face of strict conditions.

At the end of the day, Asad Umar was removed, but the stance he took against IMF was eventually proven correct, and IMF released the loan on the same conditions which they were initially resisting.
For context, IMF wanted to balance CA by getting Pak to devalue the rupee to a point where it would have taken it beyond Rs. 200, and they wanted to freefloat the currency. In September, AU said this was not the right time, and this oculdnt be done. His argument was that balance could be achieved with internal adjustment of imports/exports. He was forced out. And later on, IMF came back to agree with what AU had initially said, and disbursed the loan without these conditions.

 

[GreenMaple]

Reducing Imports drastically.
Increasing Exports (even though that was not that drastic)
and most importantly, standing up to the IMF in the face of strict conditions.

At the end of the day, Asad Umar was removed, but the stance he took against IMF was eventually proven correct, and IMF released the loan on the same conditions which they were initially resisting.
For context, IMF wanted to balance CA by getting Pak to devalue the rupee to a point where it would have taken it beyond Rs. 200, and they wanted to freefloat the currency. In September, AU said this was not the right time, and this oculdnt be done. His argument was that balance could be achieved with internal adjustment of imports/exports. He was forced out. And later on, IMF came back to agree with what AU had initially said, and disbursed the loan without these conditions.

No, AU's contribution is very limited. He was too busy with IMF loan negotiations during his short tenure as he didn't have enough time for restructuring. The economic turnaround you see today is because of restructuring of economy triggered by budget presented by Hamad Azher. Shabber Zaidi also played a key role to expand the tax base.

 

[Will_Bite]

No, AU's contribution is very limited. He was too busy with IMF loan negotiations during his short tenure as he didn't have enough time for restructuring. The economic turnaround you see today is because of restructuring of economy triggered by budget presented by Hamad Azher. Shabber Zaidi also played a key role to expand the tax base.

Just because the results didnt show during AUs time doesnt mean he didnt engineer them.
As I said above, his stance of holding IMF off paid off big time. If he had rolled over and went for the loan right there and then (as all opposition and media were railing about.) then the IMF loan would have been subject to much worse conditions.

As for the budget, or tax base, they are good measures, but they are long term measures and will not bear fruit for another 2--3 years. Expansion of tax net at this stage is mainly limited to salaried class registerign themselves. So while the tax base expands, the tax revenue remains stagnant.
Yes, Zaidi and Hammad had done well, and their actions will show results too....but the quick results Pakistan needed are all derived from the reduction in the deficit, which was engineered by AU. Im not sure what role AU will be able to play in the planning division, but his presence will always be missed in the finance ministry

 

[GreenMaple]

Just because the results didnt show during AUs time doesnt mean he didnt engineer them.
As I said above, his stance of holding IMF off paid off big time. If he had rolled over and went for the loan right there and then (as all opposition and media were railing about.) then the IMF loan would have been subject to much worse conditions.

As for the budget, or tax base, they are good measures, but they are long term measures and will not bear fruit for another 2--3 years. Expansion of tax net at this stage is mainly limited to salaried class registerign themselves. So while the tax base expands, the tax revenue remains stagnant.
Yes, Zaidi and Hammad had done well, and their actions will show results too....but the quick results Pakistan needed are all derived from the reduction in the deficit, which was engineered by AU. Im not sure what role AU will be able to play in the planning division, but his presence will always be missed in the finance ministry

AU did not present any budget, any white paper on economy, or any policy statement inside or outside of the parliament. He is a smart man but didn't have enough time to any major impact.
Anyway, let's agree to disagree. Let's hope he does well in his new ministerial role.

 

[mhafeez]

ادھار کا تیل لے کر کھاتے درست کرتے تھے
اور کہتے تھے ایک دن رنگ لائے گی یہ بادہ مستی​

 

[Toni Khan]

I bet this increase is due to the 50 Rs recovered from Nawaz Shareef ?

 

[Zainsha]

 

[Citizen X]

Mashallah and inshallah this surplus will keep rising.
Where is our economics expert patwari Rajarawal111 ?

 

[miafridi]

This is great.

 

[shafali]

KARACHI: Pakistan’s current account surprisingly turned positive after a gap of four years as the inflow of foreign currencies surpassed the outflow by $99 million in October due to a notable reduction in imports and firm worker remittances. “This is surprising. This is a very big news,” BMA Capital Executive Director Saad Hashmi said while talking to The Express Tribune. A continued reduction in imports due to the implementation of structural reforms like rupee depreciation, high benchmark lending rate and regulatory duty on imports had raised hopes for a further drop in the current account deficit in October. “However, no one had expected the current account to show a surplus,” he said. “Improved trade deficit – due to a significant fall in imports and better exports – and firm worker remittances helped turn the balance (of current account) into surplus in October 2019,” he said. The trade deficit in both goods and services narrowed 47% to $1.41 billion in October compared to $2.68 billion in the same month of last year. Worker remittances were recorded at $2 billion in October compared to $2.06 billion in October 2018, according to the central bank. A brief talk with experts suggested they were anticipating a current account deficit of around $200-300 million in the month under review. The current account deficit had been $284 million in September 2019 and $1.28 billion in October 2018. “The current account balance was last seen in surplus in September 2015,” Arif Habib Limited Head of Research Samiullah Tariq said. Cumulatively, in first four months (Jul-Oct) of the current fiscal year, the current account recorded a deficit of $1.47 billion. It was, however, 73.5% lower than the deficit of $5.56 billion in the same period of previous year, the SBP said. The massive drop came due to a significant contraction of the trade deficit in Jul-Oct FY20. “The current account deficit narrowed, thanks to the trade deficit, which went down 37% year-on-year to $7.8 billion in four months compared with $12.4 billion in the same period of last year,” he said. Keeping in view the current account surplus in October, Hashmi said, external vulnerabilities had now been taken care of and the surplus had set the tone for economic stability and growth in future. “We can expect a cut in the benchmark interest rate in the monetary policy to be announced on Friday (November 22),” he said. The next challenge for the eco nomic mangers is to accelerate economic growth. “The current slowdown in the economy is larger than expected. For example, no one had anticipated a massive fall in car sales,” he said. While structural reforms have helped turn the current account into surplus, they at the same time have adversely impacted the gross domestic product (GDP) growth. The central bank has anticipated a GDP growth of 3.5% for the current fiscal year, which is close to a nine-year low of 3.3% hit in the preceding fiscal year. He said the surplus should help further build the country’s foreign currency reserves. “Foreign debt repayment remains an issue. However, it has been taken care of in the IMF loan programme.” FDI at $650m The current account surplus should also help improve the inflow of foreign direct investment (FDI) into different sectors of the economy like telecommunication, oil and gas exploration and power production. “Foreigners should now feel comfortable and can invest in long-term projects in Pakistan on the back of a stable external account,” he said. FDI stood at $650 million in first four months (Jul-Oct) of the current fiscal year. It was 239% higher than the investment of $192 million in the same period of previous year, the central bank said. The significant rise in the FDI came following a Norway-based cellular service provider, Telenor, partially paid its licence renewable fee of $224.6 million to the government last month. Excluding this, the overall growth in the FDI has remained sluggish in the four months under review. “We have studied…FDI will gradually improve along with the sentiment,” remarked SBP Governor Reza Baqir last week. As soon as people started believing that the core issues had been addressed, the future outlook would turn positive, he said, adding “we are confident FDI will improve gradually.”

Published in The Express Tribune, November 19th, 2019.

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