Home Business Sharp decrease in CAD signals increased stability in external sector: WealthPK

Sharp decrease in CAD signals increased stability in external sector: WealthPK

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ISLAMABAD, May 17 (INP) – A sharp decrease in the current account deficit (CAD) underscores a major change in Pakistan’s economy, signalling increased stability in the external sector. However, sustaining this progress demands an ongoing commitment to sound economic policies and structural reforms, reports WealthPK.

According to the latest data released by the State Bank of Pakistan (SBP), the current account unexpectedly recorded a surplus of $619 million in March 2024, primarily due to a surge in the workers’ remittances. Cumulatively, the CAD narrowed by 87.5% to $0.5 billion during July-March FY24 compared to the same period last year.

In a conversation with WealthPK, Dr. Eatzaz Ahmed, former SBP memorial chairperson, remarked that while the recent data offered promising prospects, there was a need to be cautious about complacency. He emphasized an ongoing commitment to address the underlying structural challenges in order to ensure an enduring economic resilience and growth.

“Pakistan’s budgetary situation has deteriorated over the past three decades, and one factor contributing to this deterioration is the growing government debt, a fluctuating currency rate, prolonged trade deficit, and inflation,” he opined.

“Acknowledging the significance of reducing dependence on a few key products or trading partners, the government must endeavour to explore new markets and broaden the spectrum of exportable goods. Investments in research and development, coupled with a strategic trade diplomacy, must be utilized to identify the emerging opportunities and exploit the untapped export potential,” Dr Eatzaz further emphasised.

Talking to WealthPK, Kamran Ahmed, Policy Advisor of All Pakistan Business Forum, said, “Pakistan’s economy has long struggled with the twin deficits – current account deficit and fiscal deficit. They have now been overtaken by a third deficit, which is the trust deficit from the rest of the world, particularly investors.”

He emphasized the critical importance of winning the trust of major business figures, small traders, and all other interested parties to enhance the tax-to-GDP ratio.

Kamran said there is a need to alleviate the tax burden on exporters. These measures would enhance the competitiveness of Pakistan’s exports on the global stage, consequently bolstering export volumes and generating increased revenue for the country, thereby contributing to a more favourable balance of payments scenario.

The World Bank anticipates that the current account deficit (CAD) will persist at a low level, driven by the ongoing import management initiatives. It forecasts the CAD to stand at 0.7% of GDP in FY24, further narrowing to 0.6% of GDP in both FY25 and FY26.

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