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JS Securities Limited – JS Research (January 19, 2023)

Karachi, January 19, 2023 (PPI-OT): Dec-22: BoP movement reported at negative US$2bn, more debt maturities in the short term

Current account deficit clocked in at US$400mn for Dec-2022, down 78% YoY. The trend has remained in the same vicinity for four months, where 1HFY23 deficit has accumulated to US$3.7bn (-60% YoY).

The key reason for the sharp decline is also once again lower imports, which is among the prominent contributors to the country’s CAD. Machinery and Petroleum imports have witnessed most decline, while Textile imports is the only segment that has increased when compared to previous average trend.

On the balance of payments front, despite lower CAD, Balance of Payments further declined by US$2.3bn in Dec-2022 amid Eurobond payment of US$1bn and debt obligations of US$1.3bn. As per maturities reported as at Nov-2022 end, the country’s predetermined FCY outflows between Jan-2023 to Feb -2023 are US$6.4bn.

CAD remains low on controlled imports

Current account balance once again came close to break even, clocking in at US$400mn deficit for Dec-2022, down 78% YoY. The trend has remained in the same vicinity for four months, where 1HFY23 deficit has accumulated to US$3.7bn. For perspective, 1HFY22 CAD clocked in at US$9.1bn.

The key reason for the sharp decline is also once again lower imports, which is among the prominent contributors to the country’s CAD. Imports have declined by 34% YoY in Dec-2022 to US$4.2bn as government and regulator administrative controls stay in place, vis-a-vis monthly average of US$5.5bn otherwise. Analysing segment-wise imports, Machinery and Petroleum imports have witnessed most decline. However, where Petroleum imports remain 30% of the bill, Machinery imports contribution has declined from 12% to now 8%. Other categories across the board have also witnessed similar declines, maintaining their share in the pie. Having said that, Textile imports is the only segment that has increased when compared to previous average trend. Textile imports are now 12% of the total bill, versus 8% previously.

Remittances decline for fourth month in a row

On the other hand, remittances declined by 19% YoY, diluting some impact of lower imports on CAD. On a sequential basis, this is the fourth consecutive decline in remittances. Key reasons we believe for the recent decline are (1) increase in use of informal remittance channels given widening gap between interbank and kerb market exchange rate (reportedly at ~10%) and (2) global monetary tightening making international investment avenues more attractive, reducing allocation of funds sent to the home country.

Fresh inflows needed to net off upcoming maturities

On the balance of payments front, despite lower CAD, Balance of Payments further declined by US$2.3bn in Dec-2022 amid Eurobond payment of US$1bn (under FPI) and debt obligations of US$1.3bn (under govt amortization). However, a US$1bn FDI outflow is netted off by US$900mn net acquisition of financial assets under general government. As per maturities reported as at Nov-2022 end, the country’s predetermined FCY outflows between Jan-2023 to Feb -2023 are US$6.4bn. We believe the recent roll over announcements pertain to some of the aforementioned maturities, nonetheless, fresh FCY inflows are much needed to boost the less than 1 month import cover and alleviate concerns on the currency.

js-securities-limited-js-research-january-19-2023

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