This is the first monthly surplus since November 2020, thanks to tighter monetary and fiscal measures along with administrative steps taken by the government. CAD for 9MFY23 has been reported at US$3.372 billion against a CAD of US$13.014 billion in 9MFY22.
Balance of Trade in Goods and Services improved considerably and reported at US$1.595 billion in March 2023 against a Balance in Trade of Goods and Services of US$3.437 billion in March 2022. Even Balance of Trade in Goods improved by 9%MoM.
Workers’ remittances were reported at US$2.533 billion in March 2023 against US$2.835 billion in March 2022. Remittances have improved by 27%MoM. The trend in remittances is improving after 10-15% gap between official and unofficial rate of local currency has eliminated.
A Topline Securities report about falling workers’ remittances dated January 16, 2023 had indicated that rising gap between official and unofficial rate of USD forced workers to remit money through non-banking channels. This was also seen in Sri Lanka and Bangladesh and remittances recovered once the countries moved to a more market based exchange rate.
Exports for March 2023 were reported at US$2.427 billion against exports of US$3.071 billion in March 2022, posting a decline of 21%YoY, mainly on the back of falling global demand and a fall in commodity prices. The SBP has taken measures to encourage exporters to bring back export proceeds in a timely manner.
Imports were reported at US$3.990 billion in March 2023 against US$6.114 billion in March 2022, posting a decline of 35%YoY.
Imports were down due to a weaker exchange rate along with administrative measures to curb imports.
To recall, State bank of Pakistan (SBP) in its Monetary Policy Statement on the April 04, 2023 stated that CAD had narrowed considerably and more than previously anticipated mainly on the back of import containment.
The SBP also stated that while the CAD had narrowed, the Balance of Payments (BOP) position remained under stress and noted that foreign currency reserves remained at low levels.
A reduction in imports led to a major improvement in CAD. Administrative measures such as a ban on Machinery Import which was later removed and replaced with banks prioritizing the imports of essential items.
Similar administrative controls on imports in Sri Lanka and Bangladesh played a key role. In fact after IMF deal in Sri Lanka it has been agreed that this L/C restriction will be lifted gradually, not immediately.
Topline Securities expects import controls to be removed gradually and expect no abrupt change in policy.
The brokerage house expects the Current Account Balance to remain muted for the remainder of the year. It estimates FY23 current account deficit of US$3.5 billion.
The brokerage house highlights that Pakistan’s main issue is external debt repayment. It believes that Pakistan has to talk to its lenders to push out maturities of its debt.
It believes that discussions on debt restructuring/ re-profiling will be done after elections by the new government along with a new IMF support program.
