Cash-strapped Pakistan's current account deficit shrank 90.2 per cent to $0.24 billion in January from $2.47 billion in the same month last year, the data shared by the State Bank of Pakistan (SBP) showed on Monday.
"Current Account Deficit (CAD) recorded $0.2 billion in Jan 2023 against a deficit of $2.5 billion in Jan 2022," the central bank said in a brief statement on Twitter.
The decrease in the deficit is also 16.55 per cent lower than December when the SBP announced that the deficit was $0.29 billion.
The deficit was recorded as import restrictions continue to persist amid a balance of payments crisis that has brought the country on the verge of default, Dawn newspaper reported.
Pakistan has a chronic balance of payments problem which has exacerbated in the last year, with the country's forex reserves declining to critical levels. As of February 10, the central bank had only $3.2 billion in reserves, enough to cover barely three weeks of imports.
To stem dollar outflows, the government has imposed restrictions, allowing imports of only essential food items and medicines until a lifeline bailout is agreed with the International Monetary Fund (IMF), which is seen as essential for the country to stave off default.
Ismail Iqbal Securities’ Head of Research Fahad Rauf said the shrinking current account deficit was “not an achievement but a result of low reserves," the paper reported.
The government's strategy to restrict imports in order to safeguard reserves has turned out to be a double-edged sword, however, as several industries rely on imported inputs to continue operations.
As a result, multiple companies across sectors have either suspended operations or scaled down production levels, leading to layoffs.
The latest data shows that the country's current account deficit during the first seven months of the current fiscal year stood at $3.8 billion, which equates to a decline of 67.13 per cent compared to July-Jan FY-21-22.
During January, $3.92 billion worth of goods were imported, down 7.3 per cent from the last month. On the other hand, exports also declined, clocking in at $2.21 billion, down 4.29 per cent from the preceding month’s $2.31 billion.
Meanwhile, workers’ remittances stood at $1.89 billion, declining 9.89 per cent compared to $2.1 billion in December, according to the paper.
Pakistan heavily relies on remittances apart from exports and foreign loans for its foreign exchange reserves.
Pakistan faces a crippling economic crisis, with decades-high inflation and critically low foreign exchange reserves depleted by continued debt repayment obligations.