Macro Analysis /
Pakistan

Pakistan: August CAD at manageable levels; PKR remains under incessant pressures

  • Pakistan’s CAD print for Aug’22 nearly halved to USD0.7bn, lowest since Apr’22, amid higher exports & remittances

  • Trade deficit declined by a mere 4% MoM to USD2.9bn, owing to administrative measures on restricting non-essential items

  • The overall BoP turned to positive and stood at USD440mn. This is largely owing to USD1.2bn loan received from IMF

Intermarket Securities
22 September 2022

Pakistan’s monthly CAD print for Aug’22 nearly halved to USD0.7bn, lowest since Apr’22, despite hefty oil and food imports amid recent flood damages. Import curtailment gained support from administrative measures, reducing trade deficit to USD2.9bn (-4% MoM). Remittances also increased during the month to USD2.7bn, cushioning trade deficit adequately. The month also saw a Balance of Payment surplus owing to USD1.2bn loan receipt from IMF. Going forward, bi/multilateral loans and international aid for floods rehabilitation will likely provide external support.

Exports growth lent support

Trade deficit has declined by a mere 4% MoM to USD2.9bn, largely owing to administrative measures on restricting non-essential items and policy rate impact. However, food imports have increased to all-time high level of USD1.0bn up 34% MoM. Petroleum imports have recovered to c.USD1.9bn (+30% MoM) in Aug’22. The month also saw trend reversal in PBS-SBP import difference, which has mostly remained short-lived historically.

Resumption of energy supplies amid normalized working days and lack of Eid holidays, led to the rebound in textile exports (+18%MoM). This has led to overall exports growth of 23% MoM; helping trade deficit to remain under USD3.0bn level. 

Remittances continue to buffer trade 

Remittances recovered during Aug’22, increasing to USD2.7bn (+8% MoM), and cushioning the trade gap. Higher inflows from USA and KSA have elevated overall base. Looking ahead, we expect decent growth numbers in FY23 backed by increase in Pakistani worker registration in GCC countries. As per Board of Emigration and Overseas Employment (BEOE), around 531k Pakistanis have expatriated during 8MFY22TD compared to 288k and 225k during FY21 and FY20, respectively. Most of the expatriations have occurred towards Middle East countries which continue to enjoy better macros in a high oil price environment.

BoP turned positive; more assistance required

The overall Balance of Payment (BoP) turned to positive and stood at USD440mn. This is largely owing to USD1.2bn loan received from IMF under EFF facility. But to support overall BoP and fx reserves, Pakistan needs further support from international organizations and friendly countries, where the deliberations with these lenders have already started. We believe, the stronger dollar has continued to impact Pak Rupee besides the low foreign exchange liquidity in the country; bringing Pak Rupee near to its all-time low of c.PKR240/USD.

Apart from this, floods followed prolonged monsoon season has displaced c.15% of Pakistan population and c.1.5mn homes have been affected. As per initial estimates of several agencies, total damages have so far reached USD30-40bn and this will likely slowdown GDP growth further from initial estimates of 3.5% in FY23. A negative impact on CAD is expected to prevail owing to food and textile import requirements; keeping incessant pressures on Pak Rupee.