Pakistan’s current account deficit has plunged dramatically since the government implemented the cost-cutting measures required by the International Monetary Fund as part of its most recent aid package. According to the State Bank of Pakistan, the deficit declined 72% on a year-over-year basis, falling from $2.13 billion in July 2018 to $579 million last month. July was the first month of the nation’s fiscal year, so it’s off to a great start.
The Express Tribune reports that Pakistan’s imports dropped 26% in July, while exports grew 11%. The two improvements came after the Pakistani government implemented reforms called for under the IMF aid package, which included a 39-month loan which started last month.
The package required Islamabad to implement several major budget changes, including an increase in the key interest rate. Last month interest rates were at 13.25%, the highest level in eight years. Other required changes include a planned depreciation of the rupee, which declined 32% to Rs160 against the U.S. dollar in fiscal 2019.
The IMF also required Islamabad to increase power and gas tariffs to achieve Rs5.5 trillion in tax collections for the fiscal year and other difficult conditions to carry the Pakistani economy out of its fire financial situation.
One reason imports declined so much last month was the government’s move to collect Computerised National Identity Cards at both the wholesale and retail levels. The goal of the move was to boost the number of people who file tax returns. Experts said the increase in the key interest rate also helped pull imports down. The crackdown on smugglers should also enable the government to reach its Rs5.55 trillion tax collection goal.
Exports climbed because the State Bank of Pakistan allowed the rupee to depreciate a lot last month. Islamabad also granted a number of incentives to exporters to drive further increases. Among the incentives are subsidized gas and electricity, a tax rebate on up to a 6% increase in exports. Significant growth in food shipments also helped boost exports from Pakistan.
Pakistani expatriates sent home $2.03 billion during July, compared to $1.98 billion in July 2018. The Express Tribune adds that these inflows helped finance the trade deficit last month. In agreement with the IMF, the government aims to keep Pakistan’s current account deficit at $6.5 billion. In the last fiscal year, Pakistan’s current account deficit stood at $13.5 billion.