The central bank of Pakistan said on Monday thatPakistan’s current account deficit (CAD) dropped to $0.2 billion in January 2023, down 90% from last year as the rupee's depreciation slowed down imports.

In less than a month, Pakistan’s currency has lost more than a quarter of its value against the U.S. dollar after the removal of artificial caps, and fuel prices have risen by more than a fifth as the government implemented fiscal measures required to unlocking funds from an International Monetary Fund (IMF) bailout.

During the first seven months of the current fiscal year, the country’s current account deficit decreased by 67% to $3.8 billion, compared with a deficit of $11.6 billion during the same period last year.

“This monthly deficit is lowest after 25 months, and lower than expectations,” said Mohammad Sohail, CEO of Topline Securities, citing the falling currency. The weaker currency has made imports more expensive, effectively slashing them.

Tahir Abbas, Head of Research at Arif Habib Limited said that imports under machinery group and transport group have gone down 47% and 61% respectively was primarily due to stringent administrative measures taken by the State Bank of Pakistan (SBP) in addition to an economic slowdown.

Meanwhile, foreign exchange reserves held by the State Bank of Pakistan have fallen to around USD 3 billion, barely enough to cover three weeks of controlled imports.

In an interview with the German state broadcaster Deutsche Welle on the sidelines of the Munich Security Conference in Germany on Friday, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva, has said the funding agency has asked Pakistan to take steps to be able to function as a country and not get into a dangerous place where it needs debt restructuring.

"We are emphasising two things -- number one, raising tax revenues, as those who are making good money in public or private sectors, need to contribute to the economy, and, number two, a fairer distribution of precious resources by taking subsidies away from people who don't need them. It shouldn't be that the wealthy benefit from subsidies. It should be the poor [who] benefit from them," she said, as quoted by The News International newspaper.

"And there, we are very clear. We want the poor people of Pakistan to be protected," she added.

The IMF chief’s statement came days after the two sides concluded the ninth review of the USD 6.5 billion bailout package without a staff-level agreement after 10 days of talks. However, both sides agreed to a set of measures that could still help clinch the deal.

Image source: CNBC