Pakistan's worsening current account deficit

Pakistan’s current account deficit (CAD) increased to US$567 million in October 2022, up 56%MoM primarily due to decline in remittances and imports.

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.

Facilitating Iranian Investment in Pakistan

Kamran Tesori, Governor of Pakistan’s Sindh province has expressed readiness for facilitating investment by Iranian companies. He made these remarks in a meeting with Iranian Consul General in Karachi, Hassan Nourian.

Karachi, the hub of industrial and commercial activities, will benefit significantly from Iran’s partnership, Tesori said, expressing readiness to cooperate with Iranian companies in this regard, IRNA reported.

Nourian said that opening two new border crossings between the two countries over the past two years indicates the firm determination of the Iranian and Pakistani officials to increase the volume of bilateral trade and facilitate business.

He added that Iran-Pakistan special trade exhibition will be held in Karachi soon, which will be a new opportunity for businessmen and the private sectors of the two countries for using each other's capacities.

The two sides reviewed the latest developments related to bilateral relations, including provincial interactions and the achievements made during the recent visit of the high-level Iranian economic delegation to Karachi, as well as holding the first meeting of the joint commercial council of the two countries.

They also discussed developing border markets of Iran and Pakistan on a large scale aiming to meet the mutual needs of the two countries.

The spokesman of the Islamic Republic of Iran Customs Administration (IRICA) has said Iran exported commodities worth US$704 million to Pakistan during the first seven months of the current Iranian calendar year (March 21-October 22).

Morteza Emadi put the weight of exported goods at 1.6 million tons, and named petroleum gases, oil bitumen, industrial dry milk, liquefied natural gas, and liquefied butane as the major exported products.

He also announced that Iran has imported 512,000 tons of commodities valued at US$563 million from Pakistan in the first seven months of the present year.

The official named rice, mango, sesame seeds, and banana as the main imported items.

In late October, the Iran Chamber of Commerce, Industries, Mines and Agriculture (ICCIMA) and the Federation of Pakistan Chambers of Commerce and Industries (FPCCI) signed three memorandums of understanding (MoU) with the aim of expanding economic cooperation between the private sectors of the two countries.

The MoUs were signed during a visit of an Iranian private sector delegation headed by Gholam-Hossein Shafeie to the Pakistani cities of Karachi and Lahore.

Based on the signed memorandums, the two sides agreed to strengthen comprehensive cooperation between the private sectors of the two countries, to establish a joint trade council of Iran and Pakistan, and to determine a mechanism to resolve trade disputes.

Accordingly, the Iran-Pakistan Joint Trade Council will work together with the Iran-Pakistan Joint Chamber of Commerce to strengthen economic relations between the two neighbors.

ICCIMA pays special attention to barter trade and transit as the basis for the expansion of economic relations between Iran and Pakistan.

On November 19, 2022 ICCIMA head Shafeie made the remarks in a meeting with Muhammad Sheryar Khan, the Pakistani consul-general in Mashhad.

He also underlined the significant cultural and historical commonalities between Iran and Pakistan, as well as the opportunity for transit cooperation between the two countries with Russia.

Emphasizing the need to develop Iran-Pakistan trade relations and especially the implementation of agreements related to barter trade, the ICCIMA head said: “The economies of Iran and Pakistan complement each other due to the proximity of the two countries, and they have significant capacities for cooperation in this field, the use of which will lead to a jump in bilateral trade.”

“During the past two years, the government has taken new measures to develop economic relations with Pakistan, and efforts in the field of preferential trade and moving towards free trade have been put on the agenda. However, there are still problems in the implementation of these programs and economic interactions have not been realized as they should have been”, Shafeie further noted.

British PM Rishi Sunak visits Ukraine

British Prime Minister, Rishi Sunak travelled to Ukraine to meet President Volodymyr Zelensky and confirmed a major new package of air defence for the war-torn country.

This is Sunak’s first visit to the region since he became prime minister and follows the footsteps of his predecessor Boris Johnson, who developed a personal friendship with its leader.

The £50 million package includes 125 anti-aircraft guns and technology to counter deadly Iranian-supplied drones, including dozens of radars and anti-drone electronic warfare capability. It follows more than 1,000 new anti-air missiles announced by the Defence Secretary earlier in November.

Earlier, Sunak used the G20 Summit in Bali to urge other world leaders to take a harder line against Russian aggression.

Sunak said, "Britain knows what it means to fight for freedom."We are with you all the way", he told President Zelensky in a tweet.

His pledge of continued support follows in the footsteps of both Johnson and Truss, when she was in Downing Street.

A Number-10 spokesperson said, "The Prime Minister is in Ukraine today for his first visit to Kyiv to meet President Zelensky and confirm continued UK support."

By the end of his time in office Johnson was much mocked amid claims he would use official phonecalls with the Ukranian leader to attempt to shore up his own popularity at home.

Sunak had condemned Russia for the invasion of Ukraine. He said the UK would continue to support Ukrainians in defending themselves against Russian action, and to help ensure Kyiv is in a position of strength when they decide the time is right for peace talks.

He told reporters travelling with him to Bali that the Russin leader Vladimir Putin had skipped the summit of world leaders.

"Russia is becoming a pariah state and he’s not there to take responsibility for what he’s doing," he said. "But I’m going to use the opportunity to put on the record my condemnation of what they’re doing.”

 

Iran denies smuggling missile fuel to Yemen

Iran has unequivocally denied the US Navy's allegations that it attempted to sneak 70 tons of a missile fuel component onto a ship headed for Yemen and concealed it amid bags of fertilizer.

Iran's Permanent Mission to the UN in New York denied the accusations as unfounded in a statement, saying Tehran is firmly committed to UN Security Council Resolution 2216, which places an arms embargo on Yemen.

The statement said, “None of the allegations made against Iran over the smuggling of guns to Yemen had been proven. Iran has not taken any action against the resolution and is actively complying with the sanctions committee constituted to supervise the arms embargo."

Iran is "doing its utmost to restore the truce agreement and enable talks between Yemeni factions as soon as feasible in order to achieve peace and stability in Yemen," the diplomatic mission added.

The US Navy purportedly said that on November 08, 2022 the Coast Guard ship USCGC John Scheuerman and the guided-missile destroyer USS The Sullivans intercepted a traditional wooden sailing vessel known as a dhow in the Sea of Oman.

It claimed sailors allegedly found sachets of ammonium perchlorate concealed within what at first glance looked to be a consignment of 100 tons of urea.

In addition, the forces claimed that the quantity of ammonium perchlorate found could power more than a dozen medium-range ballistic missiles that members of the Ansarullah movement have used to launch retaliatory attacks against targets inside Saudi Arabia and the United Arab Emirates (UAE).

The president of Yemen's Supreme Political Council criticized US Special Envoy for Yemen Tim Lenderking earlier this month for thwarting efforts to prolong the UN-brokered ceasefire and compared the situation in his nation to a ticking time bomb.

"We are in a position of no peace and no war. Although we had made significant progress in earlier rounds of negotiations, the American envoy's visit to the region derailed those efforts," Mahdi al-Mashat was reported as saying in Sanaa on November 07 by Yemen's official Saba news agency.

Al-Mashat referred to Lenderking's trip to the region beginning on October 11 to ostensibly assist the UN-led efforts to extend the cease-fire in Yemen as "while the US ambassador pretends to be a peace dove, he is more an ill-omened owl."

Together with its Arab allies, the US and other Western powers provided Saudi Arabia with munitions and logistical support when it began its destructive war against Yemen in March 2015.

The goal was to overthrow the Ansarullah resistance movement, which had been in charge of the government in Yemen in the absence of a functioning one, and reinstate Abd Rabbuh Mansour Hadi's pro-Riyadh regime.

Despite the fact that the Saudi-led coalition has not succeeded in achieving any of its goals, the war has killed hundreds of thousands of Yemenis and caused the greatest humanitarian disaster in history.

 

Turkey warns oil shippers

Turkey warned the oil shippers they will need to prove they’re insured to cross the country’s vital straits, a move that could restrict flows of Russian oil as new European sanctions kick in.

The new rule starts December 01, 2022 a few days before the European Union and UK impose additional curbs on Russian trade that will make it much harder for tankers carrying the nation’s oil to get insurance. 

The insurance covers everything from oil spills to collisions, Turkey is in effect seeking to protect its waters, but it could also affect the flow of millions of barrels of Russian crude exports.

Ships hauling oil through the waterway and the nearby Dardanelles strait will be required to provide a letter from their insurer saying that cover will be provided for that specific vessel voyage and cargo, the Turkish Ministry of Transport said in a circular.

The European Union and the UK commence aggressive sanctions on Russian oil shipments on December 05, 2022 that will dramatically affect the availability of industry standard insurance. 

Russia shipped almost 650,000 barrels a day of its own oil through the straight from its Black Sea port of Novorossiysk over the past six months, loading programs compiled by Bloomberg show. A nearby Russian port exported almost 1.3 million barrels a day of cargo from Kazakhstan.

A director from the Turkish institution governing maritime traffic confirmed the letter, and said the motive behind it was to comply with EU sanctions even though Turkey is not part of them. 

The director said the move could well impact Russian tankers if they struggle to obtain the necessary protection and indemnity insurance, which covers owners against liabilities such as oil spills. The measure should boost maritime safety along the Turkish straits, he said.

Under the EU and UK sanctions, vessels will still be able to get industry standard cover, provided the cargoes being transported are purchased below a yet-to-be-determined price cap.

If ships sail through the straits uninsured, there could be significant damage to the waterway and vessel traffic could come to a standstill if an uninsured ship has an accident, the circular said. As a result, a letter guaranteeing insurance cover is considered a solution to this problem, it added. 

The International Group of P&I Clubs is based in London and organizes the cover of 95% of the global tanker fleet. It’s also reliant on Europe for reinsurance.

 

Biological war suspected in Syria and Lebanon

Cholera continues to sweep through Syria and Lebanon at an alarming pace, leaving thousands sick and hundreds dead. The number of cases of the bacterial disease in both countries is steadily increasing, with UNICEF estimating the total in Syria at 35,569 while the Ministry of Public Health puts that in Lebanon at 3,369. 

According to the European Union, the causes of the outbreak in Syria include drought, economic decline, and the battered state of the country’s water infrastructure, which leaves 47% of the population relying on unsafe sources of water for their daily needs.

Cholera is contracted by ingesting contaminated food or drinking water and causes intestinal problems and dehydration that can be fatal unless treated quickly. The key to fighting off the disease is good hygiene and clean water, yet in some remote and undeveloped areas in Syria access to these is scarce, meaning there is a real chance that the number of cases could soar.

In late September thousands of people across Syria started complaining of acute diarrhea, and the number of cases has grown steadily since.

According to the International Rescue Committee (IRC), part of the cholera outbreak was due to cowboy merchants near the Euphrates River running a water scam, whereby they sold unclean water from unregulated trucks and billed it as clean.

Syria’s problems with water treatment are far broader and largely due to the impact of the decade-long war: Nearly two-thirds of the country’s water plants, half of its pumping stations, and one-third of its water towers have been damaged because of the conflict.

The unofficial total is thought to be higher — and 35,000 suspected cases. The scale and speed of the outbreak has prompted the EU to act, providing €700,000 in humanitarian aid to contain the epidemic. 

Cholera spreads into Lebanon

As the outbreak in Syria has grown, cholera has spread to neighboring Lebanon, which itself suffers from an economic collapse, an ongoing political crisis, and a plethora of other problems.

The transmission of the disease has been facilitated by the free movement between the two countries. Lebanon is home to a large number of Syrian refugees, estimated at 1.5 million, or one-fourth of the total population.

After cholera spread to Lebanon, the World Health Organization (WHO) assessed the risk of an outbreak there as high due to the shortage of drinking water and the country's fragile and strained health system. A lack of electricity and a significant shortage of fresh water in Lebanon have placed further pressure on the system.  

The first cases in Lebanon were reported in early October. Speaking about them at the time, Lebanese Health Minister Firas Abiad said, “The common point between these cases is the majority of patients are displaced Syrians.” He added, “The absence of basic services, like safe water and sewage networks, in places where refugees gather constitutes a fertile ground for the epidemic too.”

According to official figures from Lebanon’s Ministry of Public Health, as of Nov. 13 around 3,369 people have been infected and 18 have died in the first cholera outbreak in the country in more than 30 years.

UNICEF has taken rapid action to help with the effort in Lebanon, distributing 80,000 liters of fuel to water pumping and wastewater treatment stations in locations with confirmed and suspected cases, as well as procuring emergency medical supplies to treat cholera, such as oral rehydration salts and treatment kits.

The WHO has also gotten involved, helping to arrange a shipment of 600,000 doses of cholera vaccine. A vaccination campaign in Lebanon was launched on November 12, 2022 targeting both Lebanese and refugees.

The epidemic is spreading quickly in both countries and threatens to plunge Syria and Lebanon into more uncertainty, despair, and crisis. Unless the fundamental drivers are addressed and water treatment plants and facilities, especially in Syria, are improved, outbreaks will no doubt reoccur in the future with regularity.

Pakistan Stock Exchange witnesses 25.8%WoW decline in average daily trading volume

Uncertainties regarding the country's liquidity position and ongoing political uncertainties kept the market range bound during the week ended on November 18, 2022, with the benchmark index settling down by 362 or 0.84%WoW at 42,730 points.

Participation in the market was substantially low this week, with daily traded volumes averaging 186.3 million shares during the week as compared to 251.1 million shares in the prior week, depicting a drop of 25.8%WoW. Moreover, the PKR lost footing against the US$ in the week, depreciated 0.68% over the period.

Other major news flows during the week were: 1) Talks between IMF and Pakistan rescheduled, 2) visit of Saudi Arabia's Crown Prince to Pakistan postponed, 3) Remittances recorded at USD2.2 billion for the month of October 2022, 4) World Bank agreed to provide US$1.3 billion to Pakistan for emergency, agriculture and housing relief, 5) GoP raised PKR757 billion from T-Bills auction, 6) LSM posted a 0.4%YoY decline in first quarter of current financial year, 7) July-October textiles and clothing exports down 1.34%YoY, and 8) Circular Debt Management Plan turned down by the Finance Ministry.

Top performing sectors were: Leasing, Chemicals, and Fertilizers, while the least favorite sectors were: Miscellaneous, Vanaspati & Allied Industries and Sugar & Allied Industries. Stock-wise, top performers were: LOTCHEM, FCEP, ENGRO, GHGL and TRG, while laggards included: UNITY, PSEL, KTML, GATM and ILP.       

The market is expected to remain range-bound in the near future, clouded by concerns regarding the liquidity position of the country (International Sukuk maturing on December 5, 2022) and the outcome of the IMF discussions. Furthermore, the capital markets would be taking further cues from the Monetary Policy announcement, scheduled for November 25, 2022.

Any news regarding foreign inflows will be well-received by the market, easing off sovereign liquidity concerns. Moreover, the economic slowdown in the country-an intended outcome
of the SBP's contractionary policies-and post-flood slowdown in economic activity is likely to keep corporate earnings subdued going forward. Investors are advised to stay cautious while building new positions in the market.