Leading Issues in the Economy of Pakistan: Agenda for Reforms 3.5 Balance of Payments The most critical area for Pakistan today is the external balance of payments. With low reserves and without the umbrella of an operational IMF program, there are apprehensions that Pakistan will find it increasingly difficult to meet its external payment obligations. Table 3.6 gives the BOP figures for 2020-21 and 2021-22 respectively. Table 3.6: Balance of Payments, 2020-21 and 2021-22 ($ million) 2020-21 2021-22 Current Account-2,820-17,405 Capital Account 224 208 Financial Account 8,768 11,149 Errors and Omissions-619-268 Balance of Payments 5,553-6,316 IMF-1,080-1,015 Change in Reserves 4,473-7,331 Source: SBP The current account deficit has risen to$17.4 billion in 2021-22. This is the second largest ever deficit after 2017­18. It was also high on a quarterly basis in the fourth quarter at$4.3 billion. Transactions in the financial account of the balance of payments in 2021-22 were facilitated by the release of$2.8 billion SDRs to Pakistan. Consequently, the net inflow into the financial account shows an increase of 27 percent. However, this is not large enough at$11.1 billion to fully finance the large current account deficit. Consequently, there is an overall deficit in the balance of payments of almost$6.3 billion, as compared to a surplus of$5.6 billion in 2020-21. Reserves have tumbled from$ 17.3 billion at the start of 2021-22 to only$9.8 billion as of end June 2022. This is adequate to provide import cover for only 1.5 months. Table 3.7: The Current Account in the Balance of Payments, 2021-22 ($ million) 2020-21 2021-22 Current Account Balance-2,820-17,405 Balance in Goods-28,624-39,681 Exports 25,639 32,471 Imports 54,273 72,152 Balance in Services-2,516-5,019 Balance in Primary Income-4,400-5,296 Balance in Secondary Income 32,730 32,591 Source: SBP A look at the current account position in Table 3.7 indicates a very big increase in the goods trade deficit from$28.6 billion to$39.7 billion, a jump of 38.6 percent. The year, 2021-22, has ended with the largest ever trade deficit. Remittances have shown a modest growth rate of 6.2 percent. 44