Karachi, January 24, 2022 (PPI-OT): CAD clocks in at US$1.9bn for Dec-2021
Current Account Deficit (CAD) for December clocks in at US$1.9bn, largely unchanged from November as trade gap also remained broadly unchanged amid stable remittance flows. The CAD for 1HFY22 now stands at US$9.1bn against a surplus of US$1.3bn during SPLY.
The difference between SBP-PBS import bill continues to stand visible, albeit narrowing slightly to 15% in December from 19% in November. It is imperative to note that the difference in import bill is more than cash versus accrual accounting method as PBS imports are recorded on CIF basis while SBP imports are recorded on FOB basis.
We highlight that the administrative measures to curb import bill will unlikely be impactful in face of a sustained momentum in recent rally of international oil prices. During YTD FY22, the average import price of crude oil and POL products stood c.US$74/bbl., which is 15% lower than current Arab Light price.
Dec-2021 CAD is a mere reflection of Nov-2021
Pakistan’s Current Account Deficit (CAD) for Dec-2021 stood largely unchanged at US$1.9bn when compared to Nov-2021. However, it is nearly 2x higher than the CAD of US$629mn from Dec-2020 last year. This takes 1HFY22 CAD to US$9.1bn against a surplus of US$1.25bn during SPLY.
The recent monthly CAD print is nearly a mirror image of the previous month as there isn’t much change in trade deficit as well as remittance flows. However, the financial account has improved the overall Balance of Payment position as Pakistan received US$3.0bn cash deposit from Saudi Arabia during the month. Dec-2021 witnessed a positive BOP position of US$1.9bn against a negative BOP position of US$1.25bn in Nov-2021; bringing 1HFY22 BOP position to a surplus of US$788mn.
SBP-PBS difference doesn’t cut it
Trade gap during Dec-2021 remained broadly similar to Nov-2021, while also remaining lower than the print reported by Pakistan Bureau of Statistics. Albeit, the difference in SBP-PBS import bill has slightly narrowed to 15% in Dec-2021 from 19% in the previous month. We had earlier highlighted that SBP and PBS monthly imports carry a differential most of the time, while recent findings have also suggested that the mismatch is more than just separate accounting treatment of SBP (cash) and PBS (accrual) (please refer to our report CAD: Will PBS-SBP import bill mismatch converge to historical trend?). SBP’s print will be lower at a time freight and insurance on imports go high, current freights have been higher, as it reports imports on free on board (FOB) basis whereas PBS imports are priced at the cost of freight and insurance (CIF). Additionally, SBP does not account for imports under foreign assistance as well as land-borne shipments (e.g. from Afghanistan and other adjoining countries). We highlight that the current import of cheaper Afghan coal by various cement manufacturers to retain cost efficiencies from prior quarters will likely be adding to the differential bargain.
Oil import bill is something to watch ahead
A threefold impact of low inventories, low spare production capacity and low investments is making the oil rally stronger amid resilient demand. The recent rally in oil continues to shrug off concerns from Omicron regional lockdowns as most of the economic activity throughout the globe has not impaired to a considerable extent. This has been added on by unrest in Kazakhstan which impacts c.1.8mnbpd oil supplies from OPEC+ to the global oil market. Arab light prices have crossed multi-year highs, more so than that, they currently stand higher than last yearly peak of US$85/bbl during mid of Nov-2021. Also, the oil prices have gained c.23% from early Dec-2021 lows. As per our estimates, the current oil import bill of US$8.5bn (PBS: US$10.2bn) was prices at c.US74/bbl which is 15% lower from current Arab Light prices. Our base case estimate for oil import bill of US$20.0bn for FY22 assumes an average oil price of US$75/bbl and every US$5/bbl higher can increase import bill estimate by US$1.2bn (0.3% of GDP).