KARACHI: The current account deficit (CAD) declined sharply by 81 per cent in the first two months of the financial year (FY25) while August posted surplus after four months.

The declining trend has finally produced a $75 million surplus for August, compared to a deficit of $152m in the same month of the previous year.

This must be a big relief for the government as it is struggling to deal with a huge surplus requirement for external debt servicing. The government needs $26.2 billion for debt servicing in FY25 — a head which is rising every year. According to financial experts, this is not a good sign for the economy.

The IMF loan of $7bn, likely to be approved next week, would be used to repay the debt and interest on it. Despite this inflow, the government still requires rollover of $12bn from China, Saudi Arabia and the UAE.

Foreign direct investment surges 55.5pc in August

The finance minister and the State Bank governor have assured the nation that the rollover is almost certain. This assurance has helped the local currency to stay strong against the dollar and to keep the exchange rate stable.

The CAD was $171m during July-Aug FY25, whereas it was $893m during the same period of the previous year, showing a decline of 81 per cent.

The CAD was $665m in FY24, $3.27bn in FY23 and $17.48bn in FY22.

The current account surplus in August is likely to send a positive signal to investors as well as remitters. Some analysts said that despite political uncertainty, economic performance on the external front is an achievement for the government.

They also noted that the August surplus was significant because of a large current account deficit of $246m in July. The change is welcome and could bring more inflows of dollars from exporters and overseas Pakistanis.

Foreign investment

According to the State Bank, foreign direct investment (FDI) rose by 55.5 per cent during July-Aug FY25. The increase looks healthy, but the size of investment remained poor. During the first two months of FY25, the country received $350m, compared to $225m in the same period of the last fiscal year.

The inflows in August sharply increased to $214m, compared to $142m in the same period of last year. The government has been trying hard to attract foreign investors with lucrative offers for giant entities. But foreign investors are reluctant to bring their money to a country with a high degree of political uncertainty and an economy which is being run on short-term policies.

Published in Dawn, September 19th, 2024