Current account deficit narrows to $98m in August

Pakistan's current account deficit (CAD) contracted significantly in August, suggesting an improvement in the country's external position. The State Bank of Pakistan announced that the CAD in August was $98 million, down from $342 million in the same month last fiscal year. This marked a sharp reduction from the $445 million deficit recorded in July, marking the first month of the fiscal year. If this trend continues, Pakistan may witness a current account surplus in September.

The regional turmoil, particularly the Gulf war, is causing significant challenges for Pakistan's external balance, primarily due to rising oil prices. Oil prices have surged above $100 per barrel, exacerbating the situation. Saudi Arabia, the largest oil exporter in the Middle East, faces difficulties in exporting oil due to the closure of the Red Sea route by Yemen's Houthis after the closure of the Strait of Hormuz.

The increased oil prices have put Pakistan in a more precarious position, prompting the government to explore smart lockdown measures to manage the worsening situation.

The trade deficit for the first two months of the fiscal year (July-August) expanded by 18.1 percent year-on-year to $7.12 billion, mainly driven by faster import growth compared to exports. Despite this, exports of goods during the first two months of the current fiscal year were $5.445 billion, compared to $5.238 billion in the same period last fiscal year. The balance on trade in services improved, with the deficit falling to $562 million from $753 million in the same period last year.

The prime minister has urged government officials to address all obstacles to exports, underscoring the severity of the situation. Pakistan continues to receive substantial remittances from its citizens living in the Gulf countries, which has helped maintain a stable balance of payments, a reasonable exchange rate, and reasonable foreign exchange reserves.

Foreign investment (FDI) inflows surged 80.5 percent to $315.9 million in August, up from $175 million in the same month last year. China was the top foreign investor with $113 million, followed by Canada with $50 million and the UAE with $48 million. Overall FDI rose 24 percent to $494.5 million in the first two months of the fiscal year, compared to $398.6 million in the same period last year.