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JS Securities Limited – JS Research (September 22, 2022)

Karachi, September 22, 2022 (PPI-OT): Aug-22 CAD at US$700mn; IMF receipts lead BOP surplus

Current account deficit reported a 4-month low in Aug-2022, clocking in at US$700mn (-42% MoM) over higher remittances.

For perspective, the last 12-month run rate has averaged at US$1.5bn.

With that, lower CAD was supported by a higher Financial account surplus (IMF receipt of US$1.2bn), leading to a surplus in Balance of Payments for Aug-22.

We estimate CAD for FY23 to clock in at US$13bn (-3% of GDP), excluding any impact of floods. While we await further clarity on flood losses, our preliminary estimates suggest pressures of US$3-4bn from higher food and textile imports.

Higher remittances reduce CAD quantum to US$700mn

Current account deficit reported a 4-month low in Aug-2022, clocking in at US$700mn (-42% MoM). For perspective, the last 12-month run rate has averaged at US$1.5bn. The lower number came in as Pakistan witnessed higher sequential remittances.

Moreover, trade balance also remained flat as higher exports managed to balance the increase witnessed in imports.

With a lower base of July (lower textile exports on interrupted energy supply), exports increased 23% MoM, while Imports expansion was limited to 8% MoM over decline in fuel imports this month. With that, lower CAD was supported by a higher financial account surplus, leading to a surplus in Balance of Payments in August.

The higher financial account surplus was on account of IMF receipt of US$1.2bn, leading to total Financial account surplus of US$1.2bn. For the cumulative period, the Current Account Deficit (CAD) for 2MFY23 totalled to US$1.9bn (-19% YoY).

Hurdles in reaching to a breakeven

In a bid to improve the country’s narrow import cover of ~6 weeks, we understand one of the evident aspirations of the incumbent Finance Minister has been to effectively manage the external account by balancing goods exports + remittances (receipts) to imports (payments). This has reduced to US$200mn deficit in Aug- 2022, from US$544mn in July-2022; taking 2MFY23 tally to US$757mn. We estimate CAD for FY23 to clock in at US$13bn (-3% of GDP), excluding pressures post floods.

While reported trailing numbers for 2MFY23 so far direct towards a possibility of FY23 import bill reporting below US$67bn, we expect pressures of US$3-4bn arising from higher food and textile imports post flood damages.

Moreover, unavailability of energy to textile mills and shortage of raw materials keep our lower Exports estimates intact. On the other hand, higher Non-Resident Pakistanis (NRP) number and higher average oil prices (higher income as majority NRPs in Middle East) are some of the hopes towards growth in remittances, however this could be marred by ongoing global recession.

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