Karachi, August 24, 2021 (PPI-OT): CAD declines to US$773mn in July-2021

The situation on the external account improved in July, as the SBP reported a current account deficit of US$773mn vs. CAD of US$1,619mn in Jun-2021 that had resulted from one-offs in imports. On a MoM basis, the contribution from lower trade deficit to the improving current account deficit stood at US$694mn as trade deficit declined by 18% MoM.

However, compared to the same month last year, the absolute decline in the current account was over US$1.3bn. As a percentage of GDP, the current account balance during Jul-2021 was equivalent to -2.8%, compared to -6.4% in Jun-2021 and +2.8% in Jul-2020.

The overall balance of payments stood at US$533mn in Jul-2021, over receipt of US$1bn Eurobond issue during the month.

Our FY22E CAD estimates remain intact at US$8bn (2.5% of GDP), in-line with SBP’s target of 2%-3% of GDP, over continued stability in remittances and estimated FY22E trade deficit of US$34bn. Moreover, SBP’s foreign exchange reserves are expected to improve in FY22 in light of external financing needs being more than fully met for the current fiscal year. This includes SDR allocation to the tune of US$2.8bn to be received during the ongoing month from IMF.