Karachi, July 23, 2021 (PPI-OT): Pakistan Economy – FY21 closes with CAD at US$1.8bn

Pakistan’s Current Account Deficit (CAD) stood at US$1.6bn in Jun’21 compared to US$0.6bn in May’21, taking full year Current account balance into deficit of US$1.8bn (0.6% of GDP) vs. US$4.5bn (1.7% of GDP) in the previous year.

Textile exports reached its highest level in history at US$15.4bn with value added segment registering an uptick of 28.5%YoY (US$12.4bn) as the country benefitted from trade war between China and US/EU, and business disruptions in competitive economies.

We expect FY22 CAD to clock in at US$8.3bn (2.6% of GDP) – reasonable with Govt. mounting on growth agenda – with swing factor being remittances (assumed to remain stable in FY22) where Jun’21 remittances reflected a lower seasonal throughput. Funding side should balance enlarged CAD in our view, which should withhold excessive pressure on PKRUS$ parity.

Hence, from market’s vantage we continue to advocate for thematic plays, Cements, Steel, and Construction-Allied, while the Central Bank may also pursue earlier spells of tightening to further steer clear concerns on PkRUS$ parity which could bring Commercial Banks into play. Currency plays should also come into limelight where Textiles appear primed for liftoff.