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AKD Securities Limited – AKD Daily (November 22, 2022)

Karachi, November 22, 2022 (PPI-OT): Pakistan Economy: Oct’22 CAD on the rise again

State Bank of Pakistan released CAD numbers for the month of Oct’22 which showed a rise in deficit by ~56%MoM to US$567mn in Oct’22 as opposed to a deficit of ~US$363mn in Sept’22. The rise in monthly deficit comes on the back of lower remittance inflow which declined to US$2.2bn during the month.

On cumulative basis, the CAD during 4MFY23 eased to US$2.8bn from US$5.3bn SPLY, on account of lower import bills. To note, the central bank and the incumbent government have taken various measures that discourage imports. Simultaneously, the commodity prices have also started to ease off which has deflated the import bill.

Owing to 11.6%YoY decline in imports and 2.6%YoY increase in exports during 4MFY23, the country’s trade deficit has shrunk to US$10.7bn from US$13.7bn during 4MFY22. The balance on services trade has also shrunk to US$812mn from over a billion which also contributed to the improvement in headline CAD.

At the same time, foreign direct investment (FDI) also fell dramatically by 52%YoY during 4MFY23 to only US$348mn after the monthly FDI in Oct’22 dropped to only US$95mn (down 62%YoY in the month). The decline was seen across the sectors and from all the source countries as the political noise in the country scared investors away.

We expect the quantum of trade will likely fall during the remaining FY23 with slowdown coming in both imports and exports. Also, with spread on currency exchange increasing in the black and open market, the outlook on remittance inflow from official channels will also decline. Our current estimates for FY23 CAD stands at US$10.5bn (~3% of GDP).