JS Securities Limited – Morning Briefing

Karachi, November 16, 2018 (PPI-OT): Remittances soften pickup in imports in Oct-2018

CAD increased by 34% MoM during Oct-2018, amounting to 5.0% of GDP.

Imports grew by 24% MoM, pushing up the trade deficit by 33% MoM; however, welcome relief came by way of 38% MoM growth in remittances.

While inflows are in the pipeline (fingers crossed), these quick fixes are by no means a substitute for structural reforms.

CAD rose by 34% MoM during Oct-2018

Current Account Deficit (CAD) increased 34% MoM in Oct-2018 to US$1,218mn, or -5.0% of GDP, compared to US$909mn (-3.5% of GDP) in Sep-2018. Growth in CAD was mainly attributable to a 33% MoM jump in trade deficit, which grew to US$2,654mn, where a 24% MoM rise in imports overshadowed a 15% MoM improvement in exports. The sharp decline in the PKR against US$ has not reflected in this month’s import number via a reduction, or even a stagnation in imports, compared to 19% MoM and 15% MoM declines in imports in Aug-2018 and Sep-2018, respectively. In fact, imports have grown at the highest pace in the preceding twelve months in the latest reading. Relief to the overall current account balance came by way of a much-needed 38% MoM uptrend in workers’ remittances, which reached US$2,000mn during the month, up by 21% YoY.

Inflows awaited; reforms even more so

SBP’s latest reserves stand at US$7.48bn, down ~US$300mn from Oct-18, while the number was US$13.49bn by end of Oct-17, a reflection of the precariousness of the external account situation at present. Since Jul-2018, when funds were last received from China (US$2bn), there has been no fruitful activity in the financial account. Although, inflows are still awaited from ‘friendly countries’, we remain optimistic on the Finance Minister’s assurance that the balance of payment crisis has been mitigated effectively. However, beware that these quick fixes via external borrowing are in no way a substitute for long-term institutional reforms.