Macro Analysis /

Pakistan Economy: Balance of payments Feb'22 – Lowest CAD in the past 10 months

  • For the first time in FY22, Pakistan CA balance has shown considerable improvement, thanks to recent remedial measures

  • A 40% reduction in the trade balance was the major contributing factor: imports fell 18% mom while exports rose 16% mom

  • Pakistan’s forex reserves held steady. Continuation of the IMF program is important for the trend to persist

Saad Ali
Saad Ali

Head of Research

Intermarket Securities
21 March 2022

C/A deficit reduces c.80% mom to US$0.5bn in February

As per SBP data, Pakistan’s current account deficit (CAD) dropped to US$0.5bn in February 2022, down 78% mom. This took the deficit during 8MFY22 to a whopping US$12.0bn (against a surplus of almost US$1.0bn SPLY). February is the first month in FY22, where the C/A balance has shown improvement – commensurate with the recent monetary tightening and PKR depreciation. The considerable decline was led by a 40% mom reduction in the Trade balance, complemented with a similar reduction in balances of Services trade and Primary income.              

Goods trade deficit stood at c.US$2.3bn in February, as per SBP data – the lowest level in the past 12 months. Both exports and imports contributed: exports rose to US$2.9bn (almost a record), while imports fell by 18% mom to US$5.2bn (steepest decline in the past year). As per the SBP data, except Petroleum imports (up 20% mom), all major imports declined mom; such broad-based decline indicates that the decline in imports should prove durable, in our view. Interestingly, PBS imports data show an 18% mom decline in Petroleum imports. In 8MFY22, goods exports have risen an impressive 28% yoy to US$20.6bn, but this is overshadowed by the 49% yoy growth in imports to US$47.9bn              

Remittances held steady at c.US$2.2bn (up 2% mom), after having declined 15% mom in January. Cumulatively, in 8MFY22 remittances have risen 6% yoy to US$20.1bn

SBP’s FX held up; IMF program review is important

SBP’s Forex reserves stood around US$16.5bn by end of February, compared to US$16.6bn by end of January. Pakistan is in talks with the IMF for the seventh review, which, if successful, will pave the way for another US$1.0bn disbursement (and remaining tranches of cumulative US$2.0bn). But, for this to happen, the IMF will have to approve the government’s recent relief package and amnesty program (mixed reports so far). The government had also planned an ESG compliant Eurobond of US$1.0bn, but this is likely delayed in the context of the Russian-Ukraine conflict and domestic politics, in our view.

Note that the SBP maintained the policy rate in the last two meetings; the aforementioned improvement in the Trade balance supports its stance, in the face of still-high inflation readings.