Food and oil come through for the current account deficit
Published on: January 19, 2024.
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The current account in Pakistan has returned to a surplus after five months, with a surplus of $397 million recorded in December 2023. For the second quarter of FY24, the current account also showed a surplus of $198 million, following a deficit of over a billion dollars in the first quarter. This is only the fourth time in the last four years that a quarterly current account surplus has been achieved.
The improved current account can be attributed to domestic demand compression and significantly lower commodity prices. In the first half of FY24, the current account deficit decreased from $3.6 billion to $831 million, an improvement of $2.8 billion. Both imports and exports contributed to this improvement, with a nearly $5.4 billion improvement in the goods’ trade balance.
Imports of goods decreased by 15% year-on-year, resulting in savings of $4.3 billion. On the other hand, exports of goods increased by 7% year-on-year, amounting to a gain of $1 billion. Reduced demand and lower international prices for petroleum products played a significant role in reducing imports of petroleum, resulting in savings of $2.7 billion or 62% of the total import savings.
The food group also contributed to the improvement in the current account balance, with a net impact of $1.96 billion. Import of food items decreased by $849 billion, primarily due to a drop in international palm oil prices. Wheat imports also decreased by 69% year-on-year. Food exports, particularly rice exports, recorded a significant increase of 53%, contributing 50% to the overall growth of the food group exports. Oil seeds also showed impressive growth with a 266% year-on-year increase in exports.
In contrast, textile exports declined by 9% year-on-year, with an impact of $88 million on the current account balance. Textile’s share in total exports decreased to 53%, 10 percentage points lower than the previous year. The net impact of textile group trade was negative $170 million, as imports related to textiles also contracted.
IT exports saw some improvement, reaching $303 million in December 2023. However, overall services trade balance remained in deficit at $1.4 billion. Services imports increased by 26% year-on-year, mainly due to transport and travel-related expenses.
Workers’ remittances decreased by 7% year-on-year, resulting in a loss of $1 billion. Several factors, including restrictions on informal channels and the impact of low oil prices on oil-rich countries, contributed to this decline. The future of remittances will depend on the trajectory of oil prices, and any escalations in the Middle East may further affect the remittance inflows.
Overall, the current account surplus is a positive development for Pakistan’s economy, driven by improvements in the goods’ trade balance and reduced imports of petroleum and food items. The decline in textile exports and workers’ remittances, however, pose challenges that need to be addressed.
**Source:** [Source](https://www.brecorder.com)
