BMA Capital report on Pakistan economy cad clocked in at usd2.0bn, down 34%yo y

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SBP recently unveiled external account statistics wherein the country’s overall C/A
deficit decreased by 34%YoY to USD2.0bn (0.8% of GDP) during 11MFY15 as against
USD3.0bn (1.4% of GDP) registered 11MFY14. The notable downtick in C/A deficit can be
attributed to i) higher foreign remittances, up by 16%YoY to USD16.6bn, ii) 14%YoY
decline in service deficit due to higher CSF payments and iii) tamed increase in trade
deficit by 2.5%. Despite C/A deficit, overall balance of payment position strengthened to
a surplus of USD1.6bn on account of strong financial flows. On a monthly basis, C/A
position deteriorated significantly to a deficit of USD521mn in May’15 as against a
surplus of USD223mn in Apr’15. Weak monthly C/A readings can be attributed to
massive 57% increase in trade deficit to USD1.6bn due to lower exports (down 9%MoM)
and higher imports (12%MoM). We expect external account to remain stable in the
wake of i) upward sticky oil prices owing to consistent supply glut, ii) potential
improvement in exports on reduced ERR and iii) expected increase in FDI on account of
effective execution on reform agenda. Consequently, we believe C/A deficit for FY15 to
clock in at USD2.0‐2.5bn, pushing SBP FX reserves beyond USD14bn by Jun’15 (import
cover of ~4.1 months).
C/A deficit narrowed 34%YoY in 11MFY15… State Bank of Pakistan (SBP) recently
published statistics on external account wherein the country posted a decline of 34%YoY
in C/A deficit to USD2.0bn in 11MFY15 as against USD3.0bn registered during the same
period last year. Healthy attrition in C/A deficit coupled with inflows in capital and
financial accounts translated into an overall balance of payment surplus of USD1.6bn;
however, this is significantly lower than USD3.3bn registered during the same period last
year. The substantial improvement in C/A deficit can be attributed to i) 1.5%YoY decrease
in import bill to USD37.5bn vs. USD38.1bn in 11MFY14 which was partially offset by 4%
contraction in exports to USD22.0bn, ii) notable decline of 13.6%YoY in service deficits to
USD2.0bn on account of higher CSF payments of USD1.5bn, and iii) robust growth of 16%
in foreign remittances to USD16.6bn.
….while monthly figures showed a dismal performance: On the flip side, external
account position for May’15 deteriorated significantly to a deficit of USD521mn vis‐à‐vis a
surplus of USD223mn registered in Apr’15. The dismal performance can be attributed to
marked decrease in exports to USD1.9bn, down 9%MoM possibly because of decline in
textile exports. At the same time, total imports expanded by 12%MoM to USD3.4bn
during May’15 primarily due to higher oil import bill on account of 10%MoM‐12%MoM
higher realized oil prices, in our view. Moreover, tamed increase of 1%MoM in foreign
remittances to USD1.7bn also paved the way for higher C/A deficits.
Declining exports overweighing benefits of lower oil: The country’s overall exports
remained under pressure (down 4.5% in 11MFY15) on account of notable decline in
commodity prices. Furthermore, appreciation in exchange rate against greenback (up
2.0% in FYTD) magnified the impact of lower prices. Moreover, textile exports which
contribute 57% of total exports receded by 1% to USD11.3bn in 11MFY15 as compared to
USD11.5bn in 11MFY14 mainly due to the decline in low value added exports (down by
8%) as China, the biggest market for non‐value added, due to discontinuation of its
cotton procurement policy. On the other hand, the exports of value added product posted
3%YoY growth in 9MFY15, as the benefits of GSP+ trickled in.
Pakistan Economy
Friday Jun 18, 2015
CAD clocked in at USD2.0bn, down 34%YoY
Select Economic Indicators
CPI Inflation May‐15 YoY 3.2%
SPI Inflation May‐15 YoY 1.2%
NFNE Inflation May‐15 YoY 4.9%
Reserves 05‐Jun‐15 USD17.4bn
Remittances 11MFY15 USD16.6bn
Trade Balance 11MFY15 USD(15.5bn)
Current A/c
deficit
11MFY15 USD(2.0bn)
6 Month KIBOR
(Offer Rate)
17‐Jun‐15 6.8%
10 Year PIB 17‐Jun‐15 9.9%
Discount Rate 7.0%
Iqbal Dinani
Iqbal.dinani@bmacapital.com
+92 111 262 111 Ext:2059
Trend in Trade Deficit (USDmn)
(4,000)
(2,000)
‐
2,000
4,000
6,000
Apr‐13
Jun‐13
Aug‐13
Oct‐13
Dec‐13
Feb‐14
Apr‐14
Jun‐14
Aug‐14
Oct‐14
Dec‐14
Feb‐15
Apr‐15
Deficit Export Import
Summary of Current Account
USDbn 11MFY15 11MFY14
C/A Bal. (2.0) (3.0) ‐33%
A. Trade bal. (15.5) (15.1) 2%
Exports 22.0 23.0 ‐4%
Imports 37.5 38.1 ‐1%
B. Service Bal. (2.0) (2.3) ‐14%
o/w CSF 1.5 1.1 36%
C. Remittances 16.6 14.3 16%
C/A Def. to
GDP (%)
0.8 1.4
Source: PBS, BMA Research
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