|  | 

Brokerage

JS Securities Limited – JS Research (November 21, 2022)

Karachi, November 21, 2022 (PPI-OT): Oct-2022 C/A Deficit well below recent average

Despite lower remittances, Current Account Deficit (CAD) for Oct-2022 clocked in at US$567mn, well below the country’s monthly average of US$1.2bn during CY22 TD due to lower trade deficit.

While lower imports were sufficient to nullify the slight decline in exports, keeping MoM trade deficit change minimal, the 8-month low remittances at US$2.2bn (-9% MoM) took away some benefit of the ongoing administrative steps being taken to support country’s FX reserve levels.

We reiterate our expectations for this pace to be unsustainable as normalization of imports would expand CAD in coming months, where favourable movement in commodity price and continuing import controls are key upsides to our estimates.

Oct-2022 CAD clocks in at US$567mn

Current account deficit (CAD) for Oct-2022 clocked in at US$567mn, 56% MoM higher, however, well below the country’s monthly average of US$1.2bn in CY22 TD. CAD remained well-managed despite lower remittances due to lower trade deficit. Moreover, new loans of US$1.9bn, including receipt of Asian Development Bank’s (ADB) US$1.5bn funds turned Balance of Payments positive to US$1.2bn. Oct-2022 CAD took the tally to US$2.8bn for 4MFY23, down 47% YoY.

Trade deficit remains under control

Imports continued the trend that has been set of late post administrative controls, clocking in at US$4.6bn, -5% MoM, over lower food imports and static oil imports. Exports, on the other hand, continue to face pressures over global slowdown. Textile exports, which are over 60% of the total, shed 7% MoM in Oct-2022, clocking in at US$1.5bn, slightly below its monthly average of U$1.6bn during CY22 to date. Lower imports were sufficient to nullify the slight decline in exports, keeping MoM trade deficit change minimal.

Remittances pinch the bottom-line

Remittances also dropped in Oct-2022, going down to its 8-month low at US$2.2bn (-9% MoM). The consistent decline in remittances has taken 4MFY23 total to US$9.9bn, down 9% YoY. Continuation of a similar pace would pose a slippage risk of US$2.2bn to our year’s CAD estimates of ~US$13bn, in which we have estimated flat remittances for the year.

Annual CAD estimates may reduce on lower energy imports

The goods exports + remittances (receipts) to imports (payments) balance remains close to break-even this month, reducing from monthly deficit of US$575mn. We reiterate our expectations for this pace to be unsustainable as normalization of imports would expand CAD in coming months. We expect FY23 CAD to clock in at US$13bn, which would mean monthly CAD may revert to a run rate of US$1.5bn. Having said that, significant commodity price decline and any shift in priority of conserving external funds over uninterrupted raw material and energy supply to domestic and export industries are key upsides to our estimates.

js-securities-limited-js-research-november-21-2022

ABOUT THE AUTHOR

Categories

ARCHIVES