CAB turns sur­plus for 2nd con­sec­u­tive month: SBP

The Pak Banker - - FRONT PAGE - IS­LAM­ABAD -APP

Pak­istan's cur­rent ac­count bal­ance (CAB) turned into a sur­plus of $297 mil­lion in Au­gust 2020 against a deficit of $601 mil­lion in same month a year ago, led by an im­pres­sive growth in work­ers' re­mit­tances and lower im­port pay­ment.

Ac­cord­ing to data re­leased by the State Bank of Pak­istan (SBP) on Wed­nes­day, the cur­rent ac­count sur­plus cu­mu­la­tively reached to $805 mil­lion dur­ing first two months (Jul-Aug) of cur­rent fis­cal year com­pared to a deficit of $1.2 bil­lion in the same pe­riod last year.

Ef­forts to at­tract work­ers' re­mit­tances, flex­i­ble ex­change rate and rel­a­tively be­nign im­port prices ex­plain the im­prov­ing cur­rent ac­count bal­ance, the cen­tral bank said in a state­ment.

The de­tail shows that the Cur­rent Ac­count Bal­ance with­out of­fi­cial trans­fers also wit­nessed a sur­plus of $273 mil­lion in Au­gust as com­pared to the deficit of $638 mil­lion in same month of last year.

Bal­ance of trade in goods plunged by 8 per­cent from $3.6 bil­lion in July-Au­gust 2019-20 to $3.3 bil­lion in same pe­riod of the year 2020-21.

Sim­i­larly, deficit of trade in ser­vices also nar­rowed by 50 per­cent to $462 mil­lion com­pared to $932 mil­lion in the pe­riod un­der re­view.

As a per­cent­age of gross do­mes­tic prod­uct (GDP), the cur­rent ac­count bal­ance wit­nessed a sur­plus of 1.8 per­cent in the two months of cur­rent fis­cal year as op­posed to deficit of 2.8 per­cent in the same pe­riod of last year.

The State Bank of Pak­istan re­vealed that the Cur­rent Ac­count Bal­ance (CAB) of Pak­istan posted a cu­mu­la­tive sur­plus of $805 mil­lion dur­ing the first two months of the on­go­ing fis­cal year.

Ac­cord­ing to the de­tails, the State Bank of Pak­istan re­vealed on its twit­ter han­dle, that the cur­rent ac­count re­mained in a sur­plus in Au­gust for the sec­ond con­sec­u­tive month, due to "im­pres­sive growth in work­ers' re­mit­tances and lower im­port pay­ment."

The cur­rent ac­count sur­plus rose to $508 mil­lion and $296 mil­lion in July and Au­gust 2020, re­spec­tively.

Cu­mu­la­tively, the CAB reached a sur­plus of $805 mil­lion dur­ing Ju­lyAu­gust FY2020-21 as against a deficit of $1.2 bil­lion in the same pe­riod last year. "Ef­forts to at­tract work­ers' re­mit­tances, flex­i­ble ex­change rate and rel­a­tively be­nign im­port prices ex­plain the im­prov­ing cur­rent ac­count bal­ance," the tweeted SBP.

On Mon­day, the State Bank of Pak­istan (SBP) left the bench­mark in­ter­est rate un­changed at 7% for the next two months.

The de­ci­sion taken by the SBP Mon­e­tary Pol­icy Com­mit­tee (MPC) was largely in line with mar­ket ex­pec­ta­tions, as the pol­icy re­mains an ef­fec­tive tool avail­able with the cen­tral bank to con­trol in­fla­tion. "The in­ter­est rate is left un­changed…on the threat of uptick in in­fla­tion in short term," said SBP Gov­er­nor Reza Baqir.

SBP kept its pro­jec­tion for av­er­age in­fla­tion for full-year FY21. Eco­nomic ac­tiv­i­ties are grad­u­ally im­prov­ing. SBP an­tic­i­pates eco­nomic growth at 2% in FY21.

The cen­tral bank ad­justs its pol­icy rate ac­cord­ing to the in­fla­tion­ary trend. A high in­fla­tion read­ing de­mands an in­crease in the pol­icy rate to make bor­row­ing ex­pen­sive and low in­fla­tion leads to a re­duc­tion in the pol­icy rate to stim­u­late busi­ness ex­pan­sion. In Jan­uary 2020, the in­ter­est rate was 13.2%. The Mon­e­tary Pol­icy Com­mit­tee, in its March 17 meet­ing, had de­cided to re­duce the pol­icy rate by 75 ba­sis points, af­ter which the in­ter­est rate was re­duced from 13.25% to 12.50%.

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