Karachi, July 28, 2022 (PPI-OT): Jun-2022 CAD at US$2.3bn, BOP turns to surplus
Current account reported the second largest monthly deficit of FY22, clocking in at US$2.3bn (+59% MoM), taking FY22 Current Account Deficit (CAD) to US$17.4bn i.e. 4.6% of GDP. US$636mn higher exports and US$428mn higher remittances due to the seasonal Eid effect, were overshadowed by imports expanding US$1.4bn MoM.
Statements from Finance Minister indicating pre-buying of oil in earlier months, control on luxury imports and scarcity of FCY may lead to 30% – 40% sequential decline in import bill; key factors which could lead to CAD coming in lower than our FY23E estimates of US$14bn.
The contraction in import bill leading to monthly Current Account Surplus in coming months would bode well for the ongoing external situation of Pakistan which currently has an import cover of 6 – 7 weeks.
Jun-2022 CAD reports second worst month of FY22
Despite a US$700mn lower import number vs the massive PBS import bill (US$7.7bn), current account reported the second largest monthly deficit of FY22, clocking in at US$2.3bn (+59% MoM). The higher number came in despite US$636mn higher exports and US$428mn remittances due to the seasonal Eid effect as imports expanded US$1.4bn MoM. For the cumulative period, the Current Account Deficit (CAD) for FY22 totalled to US$17.4bn (4.6% of GDP).
Imports for Jun-2022 (US$7bn, +27%/12% YoY/MoM) – highest monthly numbers on SBP data, were led by colossal oil imports. The segment reported import of US$2.89bn, 2x its usual monthly rate, contributing 41% to the month’s total import bill as per SBP data. Oil imports otherwise have ~25% share in the total pie.
Having said that, the high CAD did not lead to a negative Balance of Payments, given support from China’s debt rollover reflected in Jun-2022. With a significant jump in the Financial account in Jun-2022, the country’s Balance of Payments returned to the green zone. This is the fourth month in FY22 where Pakistan’s Balance of Payments turned positive, last witnessed during Dec-2021.
FY23E CAD of US$14bn – assumptions and risks to forecasts
We estimate CAD for FY23 to clock in at US$14.2bn (-3.6% of GDP). We limit export growth to 10% YoY on a higher base and potential shortfalls amid the energy situation. On the other hand, our assumptions incorporate a US$90/bl oil, keeping the import bill stagnant. We expect muted growth in remittances.
Ongoing statements from the Finance Minister of pre-buying of oil in earlier months, control on luxury imports and scarcity of FCY may lead to 30% – 40% sequential decline in the import bill are key elements which could lead to CAD clocking in lower than our estimates. While reported trailing numbers for July-2022 so far direct towards a possibility of July’s import bill reporting below US$5bn, we also expect a seasonal decline in remittances. Moreover, unavailability of energy to textile mills have also made rounds of lower export orders sent in July. Albeit, a situation of monthly Current Account Surplus would bode well for the current external situation of Pakistan with import cover at 6 – 7 weeks.