AKD Securities Limited Equity Research – Daily Report

Karachi, November 16, 2018 (PPI-OT): Pakistan Economy: Trade imbalance keeps CAD elevated

Latest SBP data on external account paints a not so encouraging picture, with CAD widening by 34%MoM to US$1.218bn in Oct’18. Once again, trade imbalance is the key culprit, where sequential growth in imports (+24%MoM) outpaced growth in exports (+15%MoM).

Encouragingly, remittances have staged strong recovery backed by higher inflows from USA (+34%MoM/43%YoY), UK (+47%MoM/10%YoY) and GCC (+39%MoM/13%YoY).

While we continue to stick with our earlier CAD estimates (FY19F CAD: 5.4% of GDP), recent price trends in commodities particularly energy complex are encouraging, where continuation of the same should ease pressures on the external front.

GoP’s multipronged strategy to plug the net financing gap has worked well so far, considering assurance of support from two friendly countries (i.e. Saudi Arabia and China). Assuming US$6bn from Kingdom and further US$3bn inflows from China, our estimated net financing gap for next two years comes at ~US$8bn (vs. previously US$13.5bn), cutting our reliance on a bailout from the IMF to US$6-8bn.