Macro Analysis /

Pakistan Economy: First C/A deficit in six months

  • Pakistan posted first C/A deficit in six months in Dec 2020

  • Very high imports overshadowed healthy exports and remittances

  • SBP’s reserves overcame this and a major debt outflow, and PKR was thus flat

Intermarket Securities
21 January 2021

Swelling imports overshadow strong exports and remittances

As per SBP data, Pakistan’s current account balance in December 2020 is a deficit of US$662mn, compared to five consecutive surplus in the prior months. This leads to a C/A surplus of US$1.1bn in 1HFY21 compared to a deficit of US$2.2bn same period last year.           

Goods trade deficit, of US$2.8bn is at its highest level in the past 24 months, majorly because of imports which surpassed the US$5.0bn level (for the first time since July 2018). Notably, the increase in imports (up 17% mom and 24% yoy) was not driven by any single category. This suggests that imports were driven not only by the surge in global commodity prices but more by the underlying aggregate demand, in our view. For instance, while Petroleum imports were up 6% mom (down 20% yoy), Agriculture & Chemical imports rose 25% mom (34% yoy), as per PBS data. Food and Machinery imports rose c.20% mom (where the former nearly doubled yoy). Given the broad-based trend, Imports may not decline immediately in the coming months, in our view.

Exports of US$2.4bn included record Textile exports of US$1.4bn (up 23% yoy and 9% mom), despite the second wave of coronavirus and concomitant lockdowns in the West. Not surprisingly, exports of Knitwear and Bedwear rose more than 20% yoy (more suited to work-from-home culture); even Garment exports were higher by 11% yoy. We reiterate that industry guidance, of healthy order flow until March, remains well intact. Total exports in 1HFY21 are up 5% yoy at US$12.3bn.  

Remittances in December, of US$2.4bn, were at their second highest level (US$2.7bn in July 2020). Saudi Arabia and UAE remained the biggest contributors (combined flows up 26% yoy). Interestingly, the EU now contribute more flows than the US. Total remittances in 1HFY21 are up c.26% yoy to US$14.2bn. The steep rise has been driven by the increase in use of formal and digital channels, following new incentives from the central bank.  

SBP’s Fx reserves stood flat despite large debt outflow

In the Financial account, a notable occurrence was the return of US$1.0bn to Saudi Arabia at its one-year maturity (though simultaneous inflow of the amount from China). Therefore, total SBP Forex reserves stood flat at c.US$13.4bn, while the PKR/USD also remained around 159.