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Pakistan expects CAD to decline by $2bn, informs IMF of projection

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6 months ago

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  • Govt expects imports to decline in remaining period of FY24.
  • Finance ministry expects improvement in overall trade balance.
  • Pakistan’s external financing requirements stand at $28 billion.

ISLAMABAD: 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, reported The News on Tuesday.

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.

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Pakistan’s gold prices are still declining; see the most recent

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The price of 10-gram gold reduced by Rs943 to settle at Rs207,733, while the price of gold dropped by Rs1200 to close at Rs242,300 a tola, according to the Sindh Sarafa Jewellers Association.

In the global market, the price of the precious metal fell by $10 to $2,349 per ounce, resulting in losses.

At 04:48 GMT, the spot price of gold had dropped by 0.2% to $2,354.77 per ounce. In the previous session, prices reached a two-week high.

American gold futures dropped 0.6% to $2,361.

Spot silver decreased by 0.4% to $28.03 per ounce, while palladium remained steady at $978.03 and platinum decreased by 0.1% to $992.89.

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Pakistan and the IMF begin talks for a new loan.

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Pakistan is requesting a $6 to $8 billion bailout package from the international lender over the next three to four years to address its financial troubles.

A mission team led by Nathan Porter, the IMF’s Mission Chief in Pakistan, is meeting with a Pakistani delegation led by Finance Minister Muhammad Aurangzeb.

According to sources familiar with the situation, Islamabad may face more difficult options, such as raising power and gas bills.

Mr. Aurganzeb informed the IMF team that the country’s economy has improved as a result of the IMF loan package, and Islamabad is ready to sign a new loan programme to further develop.

The IMF mission expressed satisfaction with Islamabad’s efforts to revive the country’s struggling economy.

The IMF praised Pakistan’s economic growth in its staff report earlier this week, but warned that the outlook remains challenging, with very high downside risks.

The country nearly avoided collapse last summer, and its $350 billion economy has stabilized since the end of the last IMF program, with inflation falling to roughly 17% in April from a record high of 38% last May.

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Petrol prices are likely to drop significantly beginning May 16.

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According to sources, the government is set to decrease petrol prices by Rs 14 per litre and diesel prices by Rs 10 on May 16 for the next fortnight’s revision.

Last month, the government reduced the price of fuel and high-speed diesel by Rs5.45 and Rs8.42 per fortnight, respectively.

The current fuel price is Rs288.49 per litre, while the HSD price is Rs281.96.

Meanwhile, oil prices fell further on Monday, as signs of sluggish fuel consumption and comments from U.S. Federal Reserve officials dimmed optimism for interest rate reduction, which may slow growth and reduce fuel demand in the world’s largest economy.

Brent crude prices down 25 cents, or 0.3%, to $82.54 a barrel, while US West Texas Intermediate crude futures fell 19 cents, or 0.2%, to $78.07 per barrel.

Oil prices also declined on signals of poor demand, according to ANZ analysts, as gasoline and distillate inventories in the United States increased in the week before the start of the driving season.

Refiners throughout the world are dealing with falling diesel profitability as new refineries increase supply and warm weather in the northern hemisphere and weak economic activity reduce demand.

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