Pakistan ended FY22 with a 4-year high current account deficit (CAD) of US$17.4 billion (4.6% of GDP) as against US$2.82 billion (0.8% of GDP) a year ago.
CAD for June 2022 swelled 59%MoM to US$2.3 billion as imports hit a record high of US$7.04 billion on the back of energy imports. This was despite the second highest monthly exports and seasonal rise in remittances.
In the absence of adequate foreign exchange liquidity, the disruption in goods imports along with administrative ban on non-essential items is likely to trim CAD to a sizeable extent in the coming months.
However, Pakistan’s leading brokerage house Inter Market Securities sticks to its base case estimate of US$12.6 billion (3.0% of GDP) for FY23. The most contraction in import bill will be led by absence of TERF-related machinery and COVID-19 vaccinations in addition to the respite from palm oil imports.
Trade deficit hit an all-time high of US$3.9 billion in June 2022 owing to record imports of US$7.04 billion, despite second highest monthly exports of US$3.1 billion, up 26%MoM.
Pakistan’s energy requirements surged tremendously during June 2022, as country’s monthly oil import bill hit the highest mark of US$2.9 billion.
Going forward, imports are likely to stay lower than FY22 monthly average of US$6.0 billion owing to low machinery and vaccination imports, coupled with relatively lower international oil prices and crack spreads.
Some savings will also likely emerge from Foods imports as international palm oil prices have come off by 50% recently. All this is in addition to bottlenecks created by inadequacy of foreign exchange liquidity and administrative measures to curb non-essential imports.
A against this , export of textiles and clothing remained high in FY22 owing to summer demand and adequate energy availability, but home textile demand growth may unlikely stay put in FY23.
Remittances during June 2022 increased 18% to US$2.8 billion on account of seasonal rise from Eid-festivity-flows, managing to remain above FY22 monthly average of US$2.6 billion.
Cumulatively, remittances have risen 6%YoY to US$31.2 billion in FY22. The brokerage house believes, remittance growth is likely to remain tepid as the normalized travel, opening up avenues of non-banking channels.
Despite the US$2.3 billion rollover from China in June 2022, Reserves held by State bank of Pakistan (SBP) increased by a meager US$420 million June 2022 amid elevated imports keeping import cover around 1.5 months.
The IMF staff level agreement is through and the US$1.17 billion tranche is subject to Board approval, and likely to be released by end August 22.
The brokerage house believes, Pakistan’s attempts towards overcoming the foreign exchange liquidity constraints will be difficult, more specifically in terms of bond issuances in the current scheme of things.
This will garner an approval for executing an express transaction to sell government stake in State-Owned Entities (SOEs).
