CAB turns surplus for 2nd consecutive month: SBP

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%.