The Current Account Deficit (CAD) declined to US $2.2 billion during the first quarter (Q1) of the current fiscal year as compared with the deficit of US $3.5 billion recorded during the corresponding period (July-September) of the fiscal year 2021-22. The CAD mainly contracted due to an increase in exports and a contraction in imports during July-September (2022-23), according to the latest financial data released by the Finance Ministry. During the month of September 2022, the current account deficit shrank to $ 316 million as against $ 676 million in August 2022, largely reflecting an improvement in the trade balance, according to the monthly Economic Update and Outlook October 2022 released by the Ministry of Finance. Exports on free on board (FOB) grew by 5.5 per cent during July-September FY2023 and reached $ 7.6 billion ($ 7.2 billion last year). Imports on FOB declined by 7.9 per cent during July-September FY2023 and reached $ 16.0 billion ($ 17.4 billion last year). Resultantly the trade deficit during July-September FY2023) reached $ 8.4 billion as against $ 10.2 billion last year. As per PBS, during July-September FY 2023, exports increased by 2.6 per cent to $ 7.2 billion ($ 6.9 billion last year). On YOY basis exports increased by 1.5 per cent to $ 2.44 billion in September 2022 as against $ 2.40 billion in September 2021. The major export commodities which have shown growth during the review period include ready-made garments (5.8 per cent in value and 39.7 per cent in quantity), cotton cloth (4.2 per cent in value despite a 22.7 per cent decline in quantity), knitwear (15.4 per cent in value & 64.6 per cent in quantity), carpet, rugs and mats ( 13.8 per cent in value and 11.6 per cent in quantity) footwear (27.1 per cent in value and 68.8 per cent in quantity ), footballs (59.1 per cent in value and 59.0 per cent in quantity) and others rice (0.8 per cent in value despite a decline of 2.0 per cent in quantity). The total imports in July-September FY2023 decreased to $ 16.4 billion ($ 18.7 billion last year), thus declining by 12.4 per cent. The main commodities imported were petroleum products ($2388.7 million), medicinal products ($ 372.3 million), petroleum crude ($ 1355.0 million), liquefied natural gas ($ 969.8 million), palm oil ($ 1135.7 million), plastic materials ($ 658.8 million) and iron & steel ($ 520.8 million). Meanwhile, according to the report, the trade balance of Pakistan is expected to improve in the coming months on account of import contraction due to a deceleration in domestic economic activities and aggregate demand. “Overall economic outlook shows an optimistic picture of the economic performance in the coming months. The CPI inflation is declining, the rupee has gained stability, and the current account balance is on improving trend. These developments indicate that economic activity will remain positive and persistent in coming months”, the report added. It said for the future path of inflation, the exchange rate is of utmost importance. Moderating inflation also contributes to exchange rate stability, which in the benign case may generate a virtuous inflation-exchange rate cycle. Further, exchange rate stability requires sound economic fundamentals. Besides inflation, also a manageable current account deficit and guaranteed financing of this deficit by healthy financial inflows are required. When markets get convinced about these prospects, speculative bubbles in the exchange market would be highly unlikely.