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AKD Securities Limited Equity Research – Daily Report (September 16, 2022)

Karachi, September 16, 2022 (PPI-OT): Pakistan Economy: Chasm between Imports and Exports grows again

· Pakistan Bureau of Statistics released its monthly exports and imports numbers for the month of Aug’22. The new PBS data showed country’s imports growing 22%MoM to US$6.1bn while the exports posted an uptick of 10%MoM to clock in at US$2.5bn. Resultantly, the trade deficit grew 31%MoM to clock in at US$3.6bn.

· Country’s oil and food imports posted double-digit growth during August and contributed close to half of the country’s total imports. Oil imports increased by ~30%MoM to US$1.9bn while food imports jumped by ~34%MoM to US$1.0bn as the impact of floods in the country start impinging its CAD.

· In May’22 GoP implemented a ban on imports of various items in order to arrest the slump in currency. However, more recently, government decided to reverse the ban which has again started to put significant pressure on the currency.

· With floods hitting agriculture output of the country, the local demand will have to be met through imports. Consequently, the import bill, especially the imports of food items, will likely remain elevated over the foreseeable future. We earlier revised our CAD estimates for FY23 from US$9bn to US$11.5bn—US$12.0bn.

· With anticipations building about the Fed raising interest rates by 50bps to 100bps in the next meeting, US$ will likely remain strong against global currencies. As for PkR, this will be a double whammy owing to local currency’s own frailties. Resultantly, we expect PkR to remain under pressure over the next few month. From the vantage of equity markets, the weak currency will continue to spoil investor sentiments. The IT sector, with its US$ denominated revenues will likely outperform the market.

Chasm between imports and exports widens further:

Pakistan Bureau of Statistics released its monthly exports and imports numbers for the month of Aug’22. The new PBS data showed country’s imports growing 22%MoM to US$6.1bn while the exports posted an uptick of 10% MoM to clock in at US$2.5bn. Resultantly, the trade deficit grew 31%MoM to clock in at US$3.6bn. Country’s oil and food imports posted double-digit growth during August and contributed close to half of the country’s total imports. Oil imports increased by ~30%MoM to US$1.9bn, while food imports jumped by ~34%MoM to US$1.0bn as the impact of floods in the country start impinging its CAD.

Import bill driven by oil and food imports:

Country’s oil and eatables imports grew 11.4%YoY in the first two months of the current fiscal year to US$5.1bn from US$4.6bn during same period last year. The oil import bill increased by over 7%YoY to US$3.3bn during 2MFY23 from US$3.1bn over the corresponding period last year. Further breakup showed that Crude oil imports rose by 10.5%YoY in value during the period under review while imports of liquefied natural gas declined by 3.4%YoY in value. Liquefied petroleum gas imports jumped the biggest, posting a growth of 41.5%YoY over the same period. The food import bill rose by over 21%YoY to US$1.8bn in the two months under review from US$1.47bn a year ago to bridge the local production gap. Within the food group, the major contribution came from wheat, sugar, edible oil, spices, tea and pulses.

Textile exports grow as well but still put in shade by growth in imports:

The PBS data showed that the textile and clothing exports grew by only 4.2%YoY during 2MFY23. High energy cost and floods in the country were the main reasons for the slowdown in textile exports. Data showed that ready-made garments exports jumped 8.5%YoY during the period under review while the exports of knitwear edged up 17%YoY meanwhile Bed-wear exports dropped by 3%YoY over the same period. Towel exports also declined by 6.6%YoY whereas those of cotton cloth rose by 2.7%YoY. Finally, the exports of made-up articles also posted a decline of 13.6%YoY during the period under review, which capped the overall growth in exports.

PkR woes will likely continue over the coming months:

In May’22 GOP implemented a ban on imports of various items in order to arrest the slump in currency. However, more recently, government decided to reverse the ban which has again started to put significant pressure on the currency. With floods hitting agriculture output of the country, the local demand will have to be met through imports. Consequently, the import bill, especially the imports of food items, will likely remain elevated over the foreseeable future. We earlier revised our CAD estimates for FY23 from US$9bn to US$11.5bn—US$12.0bn.

Investment Perspective:

With anticipations building about the Fed raising the interest rates by 50bps to 100bps in the next meeting, US$ will likely remain strong against global currencies. As for PkR, this will be a double whammy owing to the local currency’s own frailties. Resultantly, we expect PkR to remain under pressure over the next few months. From the vantage of equity markets, the weak currency will continue to spoil investor sentiments. The IT sector, with its US$ denominated revenues will likely outperform the market.

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