Karachi, October 20, 2022 (PPI-OT): Sep-2022 CAD clocks in at 17-month low

Current account deficit was reported at 17-month low in Sep-2022, clocking in at US$316mn (-53% MoM). The monthly reading has come down from last 12-month rolling CAD of US$1.3bn/month over steep decline in imports driven by administrative controls.

Import reduction has finally turned the goods exports + remittances (receipts) to imports (payments) balance positive in Sep-2022 (last witnessed in Apr-22), albeit we do not expect this to continue as normalization of imports would expand CAD.

We expect FY23 CAD to clock in at US$13bn, higher than current run rate (1QFY23: US$2.2bn) for the year.

Sep-2022 CAD clocks in 53% lower MoM at US$300mn

Current account deficit (CAD) for Sep-2022 has clocked in at 17-month low, reporting at US$316mn (-53% MoM). The monthly reading has come down from last 12-month rolling CAD of US$1.3bn/month. CAD and scheduled debt payments in Sep-2022 turned the Balance of Payments negative, where SBP’s foreign exchange reserves declined by another US$1bn. Overall CAD for 1QFY23 accumulated to US$2.2bn, down 37% YoY. Despite 6% YoY lower remittances, CAD in 1Q contracted due to 17% YoY decline in trade deficit.

As economic slowdown reflects in numbers

The steep decline in CAD is broadly on account of government and regulatory measures taken towards constraining economic activity through administrative controls on imports, as it has led to the country’s imports to contract from an average of US$6bn/month witnessed in the past 12 months to now US$4.8bn in Sep-2022. Economic slowdown (domestic and global) has also taken a toll on the country’s exports which, however, have been more than offset by the larger dip in imports. Trade balance, as a result, has declined by more than 30% as compared to the recent average monthly trade deficit.

On the other hand, despite global slowdown, remittances witnessed relatively lower weakness as a significant concentration of Pakistan emigrants pertain to the Middle East, a region with economy relatively shielded due to higher oil price scenario.

Expect CAD to expand in coming months

The decline in trade deficit has finally turned the goods exports + remittances (receipts) to imports (payments) balance positive in Sep-2022 (last witnessed in Apr-22). The balance that had reduced from deficit of US$544mn in July-2022 to US$311mn deficit in Aug-2022, has now clocked in at a surplus of US$116mn in Sep-2022. Nonetheless, we do not expect this pace to continue as normalization of imports would expand CAD in coming months.

We expect FY23 CAD to clock in at US$13bn, higher than current run rate (1QFY23: US$2.2bn) for the year. In addition, shortage of energy supply and shortage of raw materials (post floods) to textile mills are key downside risks to our CAD estimates as the segment accounts for more than 50% of the country’s exports.