CAD has reduced significantly on YoY basis from US$1.78 billion in October 2021. This is due to administrative measures to curb non-essential imports and reduced energy imports, lowering the trade deficit to US$2.3 billion (down 35%YoY and down 3%MoM).
Remittances witnessed a downward trend during the month to US$2.2 billion (down 9%MoM). The Balance of Payment position turned positive (US$1.2 billion) as Pakistan received US$1.5 billion loan from Asian Development Bank (ADB) in the last week of October.
Going forward, possible loans and international aid for floods rehabilitation, coupled with manageable CAD will likely provide external support to BoP position apart from US$1.0 billion international Sukuk payment which is scheduled in the first week of December 2022.
During October 2022, the trade deficit declined a mere 3%MoM to US$2.3 billion, largely owing to administrative measures taken to restrict import of non-essential items alongside 24%MoM decline in petroleum imports to US$1.2 billion. However, exports have also reduced by 7%MoM to US$2.3 billion. This is due to lower textile exports and PKR volatility, which likely refrain exporters from remitting proceeds to Pakistan.
Remittances declined in October 2022 to US$2.2 billion (down 9%MoM). Lower inflows from KSA, UAE and UK have reduced the overall base. The spread between actual and offered exchange rate coupled with active participation from informal channels dented remittance flows during the month. Looking ahead, less PKR volatility and increase in Pakistani worker registration in GCC countries may increase remittance flows in the remainder of FY23.
As per Board of Emigration and Overseas Employment (BEOE), around 693,000 Pakistanis have expatriated during 10MCY22TD compared to 288,000 and 225,000 during CY21 and CY20, respectively.
Most of these expatriations have occurred from Middle East countries which continue to enjoy better macros in high oil price environment.
The overall Balance of Payment (BoP) turned positive in October 2022 and recorded at US$1.2 billion against negative US$662 million last month. During October 2022, Pakistan received US$1.5 billion loan from ADB. Post these inflows Pakistan paid US$1.0 billion external debt repayment in the start of November 2022 while another international Sukuk payment of PKR1.0 billion is due in December 2022. Therefore, to support overall BoP and Foreign exchange reserves, Pakistan is in dire need of support from international organizations and friendly countries.
Apart from this, recent floods damaged extensive parts of Sindh and Baluchistan and displaced 15% of Pakistan population and 2.3 million homes have been affected. As per initial estimates of several agencies, total damages have so far reached US$40 billion and this will likely slowdown GDP growth to 2% as per recent estimates provided by World Bank. Pakistan is expected to receive additional assistance from international organizations and countries. We expect the pre-flood estimate of SBPs foreign exchange reserves of US$15 billion by end FY23 to remain broadly intact.
