Karachi, September 20, 2021 (PPI-OT): Pakistan Economy – Aug’21 CAD at US$1.5bn – More than meets the eye

As per the data released by the SBP, Current Account Deficit (CAD) for Aug’21 clocked in at US$1.5bn vs. US$0.8bn reported in Jul’21 – the expanding CAD explaining the recent round of currency devaluation (PkR has depreciated 4.2% since the beginning of Aug’21).

Unwrapping trade numbers, imports surged 11.3%MoM to stand at US$6.0bn, primarily on account of larger petroleum bill (mostly price related) and TERF related machinery imports estimated at US$215mn whereas exports recorded meagre increase during the month (+4.4%), amid flat Textile exports (down 0.4%MoM to US$1.3bn), which we believe is a result of delay in export proceeds.

2MFY22 current account deficit stood at US$2.3bn against surplus of US$0.8bn in the same period last year. We believe normalized trade deficit stood at US$1.8bn in 2MFY21 inclusive of vaccine imports which are to run in the near term. Our FY22 CAD is expected at US$11.6bn (3.6% of GDP), where funding position is expected to stand in positive US$2.3bn for next 1-1.5 years.

Market is expected to remain jittery in the near term with pressure on PkR/US$ parity elevating market expectation of increase in interest rates in coming months (MPC meeting due today where AKD expects Status Quo on interest rates). However, a key barometer for bringing stability on the currency side as well as triggering stock market performance would be the successful conclusion of the IMF review.