There is some good news on the economic forefront—the country’s current account deficit in fiscal year 2019-20 fell by 78 percent mainly on account of a significant decline in imports, record-high remittances and foreign direct investment, according to the State Bank of Pakistan (SBP).

The narrowing of the current account deficit is definitely a positive development. It indicates a positive trend at least in the short-term growth of the external sector. Yet considering a decrease in the current account deficit as good performance of the economy, or even any meaningful change, is misleading. The question of how the current account balance has improved is integral—whether the development came about because of an increase in exports or a decrease in imports, or if a combination of the two. It is much better that a decrease in the deficit occurs due to an increase in exports, rather than decrease in imports. Unfortunately, in this case, the opposite is true. The SBP data shows that the imports fell by $9.45bn or 18.2 percent to $42.419bn. However, exports have also fallen, as in July-May of 2019-20, exports of goods declined to $20.94bn from $22.46bn.

The development of record remittances is also overly optimistic and is not necessarily a victory. While remittances have increased in the last year, most of the “record high” statistic comes from a one-time high. In June, remittances shot up to a record $2.46bn from $1.63bn in the same month last year. Any sudden growth merits more scrutiny and is less reliable than steady growth. The myopic reality is that the pandemic has led to many expats losing their jobs—thus the impact and future of remittances must not be overestimated.

The current account deficit should be treated by the government as a hopeful sign that there is scope to improve and opportunities to take, keeping in mind that there is a long way to go.