Karachi, July 29, 2022 (PPI-OT): Current Account Balance – June-22: C/a Deficit Printed US$ 2.3bn (4.6% of the GDP); Higher Oil Imports Diluted Rise in Exports and Remittances Receipts
As per the latest data released by SBP for the month Jun-22, Pakistan’s Current Account (C/A) balance recorded a deficit of US$ 2.28bn compared to previous month deficit of US$ 1.43bn. This brings 12 months cumulative balance to post a deficit of US$ 17.41bn versus of deficit of US$ 2.82bn in the same period last year, an increase of nearly 6x.
For the month of June-22, Pakistan’s trade deficit came at US$ 3.9bn up by 27%m/m and 2.9% on a yearly basis. This sharp rise in monthly trade deficit is primarily due to increase in import of pol products (+2x m/m) as opposed to slight increase in textile exports (17%m/m); in terms of volume, 3.3mn metric tons of oil was imported in June (33%m/m), however together with higher international prices the bill doubled from US$ 1.4bn in May-22 to US$ 2.9bn in Jun-22.
Owing to higher oil prices and domestic exchange rate despite recessionary concerns around the globe, we expect C/a bal. to remain elevated as long as exchange rate, oil prices and volumetric imports remain high. However, for the month of July-22 we expect oil imports to be much lower compared to Jun-22.
Monthly C/a deficit down to US$ 2.28bn
As per the latest data released by SBP for the month Jun-22, Pakistan’s Current Account (C/A) balance recorded a deficit of US$ 2.28bn compared to previous month deficit of US$ 1.43bn. This brings 12 months cumulative balance to post a deficit of US$ 17.41bn versus of deficit of US$ 2.82bn in the same period last year, an increase of nearly 6x.
If we compare C/a, on quarterly basis it posted a surplus of US$ 1.76bn excluding pol imports, while C/a with pol inclusive is in deficit of US$ 4.32bn.
Monthly goods exports bounced by 26%m/m after a decreasing trend since Feb-22
For the month of June-22, Pakistan’s trade deficit came at US$ 3.9bn up by 27%m/m and 2.9% on a yearly basis. This sharp rise in monthly trade deficit is primarily due to increase in import of pol products (+2x m/m) as opposed to slight increase in textile exports (17%m/m); in terms of volume, 3.3mn metric tons of oil was imported in June (33%m/m), however together with higher international prices the bill doubled from US$ 1.4bn in May-22 to US$ 2.9bn in Jun-22.
Other than pol products, chemical and metal groups also witnessed some increase on m/m basis. In absolute terms on monthly basis, exports grew by US$ 636mn compared to sharp rise in imports by US$ 1,479mn. Considering the 12m FY22 period total trade deficit now stands at US$ 3.9bn compared to US$ 3.8bn last year same period, an increase of nearly 2.9%y.
No respite from services and income (ex-remittances) balance
Country’s services deficit slightly increased to US$ 0.7bn compared to US$ 0.5bn in previous month. This takes 12 months total services deficit to US$ 5.2bn compared to US$ 2.5bn last year same period; a 1.5x y/y growth. Income (ex-remittances) deficit slightly jumped to US$ 0.39bn compared to last month US$ 0.19bn.
Remittances growth up by 18%
Remittances, for the month clocked in at US$ 2.8bn up by +18%m (+1.7%y) when compared to previous month inflow of US$ 2.3bn. This takes 12mFy22 total remittances to US$ 31bn, up by +6%y.
Outlook
As of 22th July, total reserves stood at US$ 14.4bn, US$ 8.6bn with the SBP and remaining US$ 5.8bn with the private banks. At this level, import coverage stands at 2 months, which in our opinion is of great concern.
Owing to higher oil prices and domestic exchange rate despite recessionary concerns around the globe, we expect C/a bal. to remain elevated as long as exchange rate, oil prices and volumetric imports remain high. However, for the month of July-22 we expect oil imports to be much lower compared to Jun-22.
Moreover, the government has reversed the import ban on luxury and non-essential items except for CBUs of auto, mobile, and home appliances that were projected to be worth around US$ 100-150mn.