While not moving away from the envisaged macroeconomic framework, Pakistan has communicated to the International Monetary Fund (IMF) that it expects the Current Account Deficit (CAD) to decline by $2 billion to end at $4.5 billion compared to the $6.5 billion projected till the end of June 2024.
The downward projection of CAD indicated that the government was expecting that imports would continue to decline in the remaining period of the current fiscal year.
Amid difficulties in materialising the external dollar inflows up to the desired mark, Pakistani authorities have no other option but to reduce the CAD to avert a balance of payment crisis.
Pakistan’s external financing requirements stood at $28 billion — foreign debt servicing of $23.5 billion and CAD projection of $4.5 billion.
After the signing of the IMF agreement under the $3 billion Stand-by Arrangement (SBA) programme, the forex reserves saw an improvement in July 2023, but in the last two months, the pace of external loans and grants has slowed down. Now the authorities are expecting that completion of the first review of the IMF programme would push up the dollar inflows from multilateral and bilateral creditors.
Economist Dr Hafiz A Pasha estimates that the external financing gap may be around $6 to $7 billion for the current fiscal year and the completion of the IMF review would help Islamabad to reduce this gap.
“The current account deficit stood at $0.947 billion in the first quarter of the current fiscal year, so overall the CAD is expected to be restricted at $4.5 billion against earlier projections of $6.5 billion for FY24,” sources told The News on Monday.
These projections have been shared with the visiting IMF’s review mission which is engaged with Pakistani authorities under the $3 billion SBA programme.
The government projects that the exports would be around $30.843 billion while imports would stand at $64.7 billion in the current fiscal year.
The finance ministry’s projections of seeing an improvement in the overall trade balance are based on its hope of increasing exports of rice in the wake of increased production of 2 million tonnes of rice and 5 million additional bales of cotton. However, the sources said that the import bill might be reduced from a projected amount of $64.7 billion to $58 billion for the current fiscal year.
There is another risk that the remittances might also witness a reduction on account of the envisaged target as it might stand at less than $30 billion against the official projection of $32.889 billion for the current fiscal year.
The government expects that the GDP growth rate may hover around 3.5% after improved performance of the agriculture sector and large-scale manufacturing sector growth of around 3%.
The Consumer Price Index (CPI) based inflation is expected to hover around 21% on average in the current fiscal year. The reduction in imports of commodities, improved exchange rate and better supply of goods would help to reduce inflation on a monthly basis in the remaining period of the current fiscal year.