Karachi, February 21, 2023 (PPI-OT): Jan-2023: Another low CAD, another high BoP deficit
Current account balance once again came even closer to break even, clocking in at US$242mn deficit for Jan-2023, down 90% YoY, marking a 23-month high, once again over lower imports.
While SBP imports reached a 27-month low, it also marked the third consistent month where imports were more than US$900mn lower to PBS imports. Analyzing segment-wise imports, sharp decline in Machinery imports and Imports other than through banks have been among key contributors, declining their contribution from 32% to 13% in the total bill.
On the balance of payments front, despite lower CAD, Balance of Payments once again reported a deficit of more than US$2bn, over debt obligations repaid during the month. As per maturities reported as at Dec-2022 end, the country still has hefty predetermined FCY outflows between Feb-2023 to Mar-2023, accumulating to US$4.6bn.
Jan-2023 CAD comes closer to break even
Current account balance once again came even closer to break even, clocking in a US$242mn deficit for Jan-2023, down 90% YoY, marking a 23-month high. The trend has remained in the same vicinity for five months, where 7MFY23 deficit has accumulated to US$3.8bn. For perspective, 7MFY22 CAD clocked in at US$11.6bn. Interestingly, previous month’s CAD that was reported at US$400mn was revised to US$290mn over changes under the trade and secondary income accounts. The key reason for the sharp decline is also once again lower imports, which is among the prominent contributors to the country’s CAD. Imports have declined by 37% YoY in Jan-2023 to US$4.2bn as government and regulator administrative controls stay in place, vis-a-vis monthly average of US$5.5bn otherwise.
As Machinery and ‘other’ imports continue to fall
While SBP imports reach to a 27-month low this month, it also marks as the third consistent month with a gap of more than US$900mn when compared to PBS imports.
Analyzing segment-wise imports, sharp decline in Machinery imports has been among key contributors. The segment’s imports reported a 70% YoY decline, reducing its weight in the total bill from 14% to now 7%. Moreover, Other imports segment, that was 18% of the import bill previously, has declined by 80% YoY, bringing contribution to 6% now. This segment does not report any detailed break-up. Other categories across the board have also witnessed similar declines, broadly maintaining their share in the pie. On the other hand, flat Food imports and 14% YoY higher Petroleum imports limit the decline in the overall import bill.
5 consecutive declines in Remittances; rebound expected
On the other hand, remittances declined by 13% YoY, diluting some impact of lower imports on CAD. On a sequential basis, this is the fifth consecutive monthly decline in remittances. Key reasons we believe for the recent decline was the increase in use of informal remittance channels given widening gap between interbank and kerb market exchange rate, which contracted by Jan-2023 end. With lesser
incentive of remitting funds through unofficial channels amid both rates at almost
similar levels, we expect remittances in Feb-2023 to report a sequential rebound.
BoP still declines by another US$2bn
On the balance of payments front, despite lower CAD, Balance of Payments once again reported a deficit of more than US$2bn, over debt obligations met during the month. This brought SBP foreign exchange reserves down to US$3bn at month end, with import cover at just couple of weeks.
As per maturities reported as at Dec-2022 end, the country’s predetermined FCY outflows between Feb-2023 to Mar-2023 are US$4.6bn. We believe roll over announced by some friendly countries so far pertain to some of the aforementioned maturities, nonetheless, fresh FCY inflows are much needed to boost the less than 1-month import cover and alleviate concerns on the currency.