Karachi, December 19, 2022 (PPI-OT): Nov-22 CAD down to lowest since Feb-21 over lower imports

Nov-22 Current account deficit was reported at its lowest since Feb-21, clocking in at US$276mn (-51% MoM). The monthly reading is down from last 12-month rolling CAD of US$1.1bn/month over steep decline in imports owing to government controls.

Exports plus remittances to imports (payments) balance also clocked in positive; albeit we do not anticipate this to sustain because normalizing imports will likely increase CAD in coming months.

We believe that if US$80/bbl oil prices continue for the remainder of FY23, our CAD estimates would decline to US$11.6bn (3.42% of GDP). The said lower imports are expected to be offset by lower exports and remittances over global slowdown.

Current account deficit declines 51% MoM

Current account deficit (CAD) for Nov-2022 declined to US$276mn (-51% MoM), a level last witnessed at the start of CY21. The deficit shrank as contraction in imports more than offset lower exports and remittances this month. Moreover, exports + remittances also clocked in greater than imports, with a surplus of US$83mn. This has taken the 5MFY23 CAD tally to US$3.1bn, down 57% YoY.

Declining trend could reverse as imports normalize

The ongoing trend is much lower than our year’s CAD’s estimates of US$13.5bn, as we believe normalized imports (excluding administrative controls) and making way for pending imports would take the monthly run rate back to US$1.5bn. Hence, continuation of the said controls is a temporary upside to our estimates.

We highlight, the ongoing trend of lower exports (down 4 months consecutively) and lower remittances have also been outpaced by import figures this month as SBP import figures (based on receipts) came in US$982mn lower than PBS import figures (based on goods movement) in Nov-2022. As a result, trade balance figures incorporated in the CAD account is US$851mn lower than PBS reports.

Global slowdown may offset savings from falling oil prices

Ongoing declining commodity prices pin hope on upside to our CAD estimates of US$13.5bn for the year (3.98% of GDP). Oil imports and other commodity-based imports (cumulative: ~45% of import bill) may witness a lower than estimated accumulation in FY23 as respective commodities have fallen over 30% from recent highs.

As we discussed impact of falling oil prices in our note, if prevailing US$80/bbl oil prices continue for the remainder of FY23, our CAD estimates would decline to US$11.6bn (3.42% of GDP). On the other hand, the said saving in imports would likely be offset by lower exports and remittances over global slowdown. While we expect exports to decline by ~5% YoY in our base case (5MFY23: -2% YoY), we foresee remittances to decline by 7% YoY (5MFY23: -10% YoY).