Karachi, September 20, 2021 (PPI-OT): Current Account posts alarming yet highly anticipated levels

SBP reported a Current Account (CA) deficit of US$1.48bn for Aug-2021, almost double compared to Jul-2021 print. During Aug-2020 last year, low trade gap had yielded a CA surplus of US$255mn. An increased trade gap of US$3.67bn, as imports rose faster than exports in face of steady pace of remittance flows, has ballooned the CA deficit. Cumulatively, CA for 2MFY22 now stands at a deficit of US$2.29bn against a surplus of US$838mn last year.

SBP’s monetary easing, pandemic stimuli (TERF) and commodity super cycle have all triggered a steep rise in imports. A dissection of Pakistan’s imports during 2MFY22 reveals a 45% jump in food, 19% in machinery, 165% in transport, 87% in petroleum. It is pertinent to note that amongst machinery imports, mobile phone imports have declined 20%YoY, which attests the efforts of companies like Air Link Communication to reduce import bill by assembling phones in Pakistan.

We highlight that the TERF related machinery imports along with the commodity super cycle imports i.e. food, steel, etc., is transitory in nature where TERF machinery may likely last another 2-3 months while Pakistan may continue to take the commodity prices pressure till the time global economies start raising rates or tapering the monetary easing programs.