USD/PKR is trading slightly higher on Thursday compared to the close price yesterday.
Currently, one US dollar buys 154.275 Pakistani rupees, up from 154.250 at Wednesday close. The Pakistani government is controlling the rate of its national currency, which is why it shows little volatility against the US dollar.
However, judging by larger timeframes, the rate is gradually declining.
USD/PKR: Pakistan’s Current Account Deficit Tumbles
The rate of contraction of Pakistan’s current account deficit, which represents the difference between the government’s foreign payments and its income, slowed as deficit tumbled 72% in the first seven months of the fiscal year 2020. This is the result of the government’s effort to ease import barriers as it aims to support economic activities at home.
The deficit had declined 75% in the first six months of the current fiscal year. The contraction comes after the current account deficit touched $555 million last month, which is the highest in five months. The move was driven by an increase in imports last month and a decline in exports and remittance inflows.
The State Bank of Pakistan (SBP) said that the combined deficit in the first seven months of the fiscal year 2020 was $2.65 billion compared to $9.47 billion in the same period of FY2019.
A major contraction in imports was the main factor driving the performance of the current account deficit, while exports are about to gain momentum in USD terms later on. Elsewhere, workers’ remittances haven’t changed considerably.
More than half of the imports are planned for re-export from the country. Thus, imports would steadily increase as the government eases regulations to boost manufacturing and exports.
Previously, the central bank green-lighted commercial banks operating in Pakistan to make up to 50% advance payment for the import of raw materials, plants, and machinery in December and up to 100% in January.
The current account deficit will continue to see a declining pace of contraction, analysts say. However, what is disappointing for the economy is that exports have failed to gain momentum even though the rupee declined by over 50% since January 2018 to June 2019.
