ISLAMABAD – The update of the Asian Development Bank’s (ADB) flagshipannual economic publication noted the current account deficit eased from6.3% of gross domestic product (GDP) in FY2018 to 4.8% in FY2019. The tradedeficit narrowed by almost 11.5% to $28.2 billion as rupee depreciationdrove down merchandise imports by 7.4%, particularly for goods other thanpetroleum.
Despite currency depreciation in real effective terms, merchandise exportsdeclined by 2.2%, partly because low cotton production constrained textileexports. Workers’ remittances stirred from 3 years of near stagnation togrow by 9.7%, lending support to the current account.
Pakistan has done well in stabilizing the economy in face of strongchallenges by taming the spiraling current account deficits and export billand through robust implementation of reforms to improve governance andrejuvenating country’s competitiveness,” said Xiaohong Yang, ADB CountryDirector for Pakistan.
“Pakistan need to press ahead with macroeconomic and structural reforms;revitalizing public sector enterprises; improving revenue collection,energy and water security, and leveraging improved security and regionalcooperation opportunities, to secure the hard won gains and promote growth.”
The financial account surplus narrowed considerably in FY2019, by 16.2%,the $2.3 billion fall mostly accounted for by $1.8 billion less in foreigndirect investment owing in part to policy uncertainty but also to thewinding down of energy and infrastructure projects in the China–PakistanEconomic Corridor.
However, notwithstanding large bilateral financing received from thePeople’s Republic of China, Saudi Arabia, and the United Arab Emirates,gross foreign exchange reserves fell by $2.5 billion to $7.3 billion at theend of June 2019, or cover for 1.7 months of imports, noted the report.
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Other notable challenges included 24 percent depreciation of Pakistanrupees against the US dollar FY2019 as the authorities moved toward theadoption of a flexible exchange rate determined by the market, after havingdefended an overvalued rupee in recent years.
Inflation trended substantially higher, from an average of 3.9% in FY2018to 7.3% in FY2019, mainly reflecting currency depreciation and aconsiderable increase in domestic fuel prices. Average food inflationreached 4.6%, partly because of the poor harvest, and nonfood inflationaccelerated to 9.2%.
To keep policy rate positive in real terms, the State Bank of Pakistan, thecentral bank, raised its policy rate by a cumulative 575 basis points to12.25% at the end of FY2019, and by another 100 basis points to 13.25% inJuly 2019.
