Macro Analysis /

Pakistan: Current account deficit grew in April, but dwarfed by eurobond inflows

  • Pakistan’s had a C/A deficit of US$200mn in April 2021 but 10MFY21 C/A balance remained green

  • Exports declined sharply mom, but remittances rose to a record level ahead of Eid in May

  • Eurobond inflow of US$2.5bn took SBP’s Fx reserves to the highest level since June 2017

Intermarket Securities
25 May 2021

C/A deficit rose to US$200mn in April

As per SBP data, Pakistan’s current account balance in April 2021 was a deficit of US$200mn, compared with a deficit of US$33mn in the previous month. This took the C/A balance in 10MFY21 to a surplus of US$0.77bn – thanks to five consecutive monthly surplus earlier in the year; Pakistan had a C/A deficit of US$4.7bn SPLY.

Goods trade deficit worsened in April to US$2.7bn. Exports declined 12% mom to US$2.3bn – but were still better than the monthly average of US$2.0bn during the prior nine months. As per PBS data, Textile exports were flat at US$1.3bn in April, while non-textile exports fell 13% mom (this was broad-based). Imports also remained high at US$4.9bn; though they fell 5% mom, largely dragged by lower Machinery imports (down 24% mom, as per PBS). Recall, that the SBP TERF facility expired in March (it was a Covid-19 invoked stimulus measure, under which industries could borrow at concessionary rates to import machineries). Goods exports in 10MFY21 rose 7% yoy to c.US$21.0bn, but the rise was overshadowed by a 17% yoy jump in imports. Remittances thus played a major role in keeping the C/A balance in the green.

In April, Remittances reached a record level of US$2.8bn (up 2% mom), marginally higher than the previous peak set in July 2020. Note that these flows came ahead of the Eid holidays in May. They took cumulative remittances in 10MFY21 to US$24.2bn, up an impressive 29% yoy despite the Covid-19 pandemic. GCC countries contributed c.60% of the flows in the 10mths’ period; there was a 25% yoy decline in flows from the US, while flows from the UK rose 28% yoy. Notably, remittances from the EU have tripled yoy in FY21 so far (majorly sent from the Southern European countries). Given the third wave of Covid-19 globally and in Pakistan, we expect remittances to remain well above US$2.0bn per month in the remainder of 2021.

SBP’s FX reserves rose to the highest level since FY 17

SBP’s forex reserves were at US$15.6bn at the end of April 2021, a staggering increase from US$13.5bn at the end of March. This was majorly led by the receipt of US$2.5bn from Eurobond issue in March. The rise in Fx reserves (equivalent to over 3mth import cover) was also led by the healthy flows in the Roshan digital accounts – which recently crossed US$1.0bn. The PKR/USD was nearly flat mom around 153 at the end of April 2021.