Karachi, April 20, 2023 (PPI-OT): Mar-2023: Highest monthly current account balance in 8 years, but not much to rejoice

The Current account balance for Mar-2023 clocked in at surplus of US$654mn. This was not only an 8-year high monthly balance but also the third highest monthly balance witnessed in the last 20 years.

While lower / restricted imports continued to play its role in containing the current account, the key driver for the surplus was the 27% MoM higher remittances - a seasonal uptick witnessed with Ramadan.

While SBP import levels remain at almost 2-year low levels, the same continues to hamper economic growth. Industries depending on imported raw material / machinery are simultaneously witnessing partial / complete shut downs, also reflecting in unprecedented (barring pandemic) LSM decline of 5.6% YoY decline in 8MFY23.

Third highest monthly current account balance in 20 years

Current account balance for Mar-2023 clocked in at surplus of US$654mn, restricting 9MFY23 deficit balance to US$3.4bn (-74% YoY). The month’s balance was not only the first surplus in 15 months, it was the highest balance in 8 years (last in Feb-2015). Moreover, the Current account surplus size was a lesser seen event in Pakistan’s recent history as it was the third highest monthly balance witnessed in the last 20 years.

While lower / restricted imports continued to play its role in containing the current account, the key driver for the surplus was the 27% MoM higher remittances - a seasonal uptick witnessed with Ramadan. Remittances for the month rebounded to 7-month high, with USA, UK and Saudi Arabia contributing highest towards the growth.

BoP receives support for another surplus month

During the month, Pakistan received foreign assistance of worth US$359mn, while Balance of Payments (BoP) clocked in at a surplus of US$636mn. The BoP reported a surplus for the second consecutive month over minimal Financial account deficit, while it was higher than the foreign assistance due to much support from the sizable Current account surplus this month.

External crisis keeps economic growth at a lower priority

While SBP import levels remain at almost 2-year low levels, the same continues to hamper economic growth. In addition to steep PKR/US$ depreciation, import decline has also been driven by administrative controls given the FCY crunch. As a result, industries depending on imported raw material / machinery are simultaneously witnessing partial / complete shut downs. The same also reflects in the Large-Scale Manufacturing data, which has reported a 5.6% YoY decline in 8MFY23 - an unprecedented trend barring the pandemic period.

While FY23E Current account deficit estimates now further trim to US$4.5-US$5bn on compromised growth, it may provide the much-needed support on external account. To recall, the country’s scheduled debt obligations till Jun-2023 stand at US$4.5bn where US$2.3bn out of these are expected to be rolled over. This leaves net payment of US$2.2bn vis-à-vis debt payments of US$9bn in 9MFY23.