Moaaz Manzoor

Pakistan’s fourth consecutive current account surplus, driven by higher exports, increased remittances, and reduced imports, signals temporary external stability underscoring the need for structural reforms to ensure long-term economic sustainability, reports WealthPK.

The current account surplus for November 2024 marks the fourth consecutive month of a positive balance, reflecting improved external stability. The surplus of $729 million is the second-highest since July 2013, demonstrating a significant recovery from a deficit of $148 million in November 2023. Cumulatively, the surplus for the first five months of FY25 reached $944 million, in stark contrast to the $1.676 billion deficit recorded during the same period last year. Speaking to WealthPK, Syed Zafar Abbas, General Manager at Zahid Latif Khan Securities, emphasized the critical factors contributing to this improvement.

He highlighted that the surplus was bolstered by a 4% year-on-year (YoY) growth in exports, totaling $3.5 billion for the month. Simultaneously, imports contracted by 7% YoY. “The current account surplus not only reduces reliance on external borrowing but also strengthens the foreign exchange reserves, stabilizes the exchange rate, and eases the inflationary pressures,” Abbas remarked. Syed Ali Ehsan, Deputy Executive Director at the Policy Research Institute of Market Economy (PRIME), pointed out that the surplus reflects a reduced economic activity, stemming from deliberate policy measures aimed at slowing the economy to curb inflation.

He explained, “The decrease in demand is evident as inflationary trends decline. With the recent 200 basis points cut in the policy rate, the private sector borrowing costs are lower, potentially spurring investment and spending. However, the government’s borrowing could crowd out the private sector, limiting its growth impact.” Ehsan underscored structural challenges in maintaining external stability. “The current account surplus is largely driven by import compression and reduced domestic demand, which is not sustainable long-term.

Policy measures should focus on trade and tariff reforms to correct distortions in the production mix and eliminate inefficiencies. Sustainable growth requires incentivizing emerging industries rather than providing broad concessions to established sectors,” he elaborated. Ehsan also cautioned against over-reliance on speculative stock market growth, emphasizing that while the benchmark index may rise, it often reflects speculative behavior rather than substantive economic improvements. “The surge in stock exchange activity provides limited long-term benefits to the broader economy,” he added.

The improvement in the current account balance highlights a temporary reprieve for Pakistan’s external sector. While remittances, reduced imports, and export growth have contributed positively, long-term stability requires addressing structural trade imbalances, diversifying exports, and fostering private sector-led growth. Sustainable external stability hinges on aligning fiscal and monetary policies with a coherent trade strategy that supports competitiveness and innovation.

Credit: INP-WealthPk