Karachi, December 21, 2021 (PPI-OT): CAD: Will PBS-SBP import bill mismatch converge to historical trend?

Pakistan’s Current Account Deficit clocks in at US$1.9bn for Nov-2021 where the key talking point was the massive US$1.5bn difference between Nov-2021 imports reported by PBS earlier vs the imports included by SBP in CAD calculation.

The 19% difference is higher than 6-year average of 7%. While we await clarity, this quantum is not unprecedented in percentage terms, where there are 28 instances of greater than 10% difference since July 2015.

While this has fuelled expectations that Dec imports included by SBP in CAD calculations could be materially higher than PBS reported imports (hence straining CAD), historical data suggests that this is not necessarily the case.

Nov CAD of US$1.9bn depicts import differential

Pakistan’s Current Account Deficit (CAD) for Nov-2021 clocked in at US$1.9bn (7.4% of GDP) after tepid sequential growth in trade gap. As per SBP data, the imports grew at a slower pace of 7% MoM during Nov-2021 as compared to exports which rose at a faster rate of 14% MoM. This takes 5MFY22 CAD to US$7.1bn (5.3% of GDP) against a surplus of US$1.9bn (1.6% of GDP) during 5MFY21. It is pertinent to note that CAD continues to stand higher than SBP’s revised target of 4% of GDP where SBP expects a total of c.US$14bn to stand full-funded for FY22E.

The key takeaway for market participants has been the difference of US$1.5bn between the Nov-2021 trade gap of US$5.0bn reported by Pakistan Bureau of Statistics (PBS) as compared to US$3.7bn trade gap reported by SBP. The bone of contention emerges from the difference in import bill where the absolute difference is US$1.5bn.

But this has been the case in 28 out of last 77 instances

Pakistan has always carried a differential between SBP and PBS monthly imports of c.US$330mn, SBP import bill being 7% lower than PBS, which effectively points towards the mismatch that arises out of separate accounting treatment – SBP (cash) versus PBS (accrual) – as well as trade and deferred payments settlements.

The recent difference of c.US$1.5bn is highest when compared with the monthly prints since Jun-2015, last highest difference of US$898mn recorded in Apr-2017.

Will the Dec CAD print reflect higher import bill?

While market speculations are rife towards a higher CAD print in Dec-2021 which is added on by lower SBP import bill in Nov-2021, historical data suggests lack of empirical evidence of differences being panned out in upcoming months.

Nevertheless, the current situation of low forex liquidity amid Afghanistan situation and mounting pressure on Rs/US$ parity from high near-term FX liabilities (US$7bn) cannot be ruled out in face of an exorbitantly high SBP-PBS import bill differential.

BOP position could have been worse; no respite from oil

We have experienced a decline in reserve asset to the tune of US$1.4bn during FY22TD, which could have been much worse had we not received fresh SDR allocation of US$2.8bn. Additionally, our calculations suggest that during FY22TD, Pakistan imported oil and petroleum products at a price range of US$71-72/bbl, which still does not put the country in a position to be able to overcome import bill pressures relative to oil prices to a large extent.