Macro Analysis /
Global

Pakistan's Balance of Payments - Administrative measures improve CAD in Sep’22

  • Pakistan’s CAD for Sep’22 further halved to USD316mn, the lowest since Apr’21, owing to an 18% MoM decline in imports.

  • Remittances declined in Sep’22, to USD2.4bn (-11% MoM). Lower inflows from KSA, UAE and UK have reduced the overall base

  • Balance of Payment (BoP) turned negative again in Sep’22 and stood at USD662mn against positive PKR438mn last month.

Intermarket Securities
20 October 2022

Pakistan’s monthly CAD print for Sep’22 further halved to USD316mn, the lowest since Apr’21, owing to an 18% MoM decline in imports. Administrative measures to curb non-essential imports continue to pay off amid reduced energy imports, lowering the trade deficit to USD2.3bn (-24% MoM). This is despite remittances witnessing a downward trend during the month to c.USD2.4bn (-11% MoM). The Balance of Payment position turned negative USD662mn as debt repayments continued. Going forward, possible loans and international aid for floods rehabilitation, coupled with manageable CAD will likely provide external support to BoP position.

Trade deficit shrank owing to restricted imports

During Sep’22, the trade deficit declined 24% MoM to USD2.3bn, largely owing to administrative measures on restricting non-essential items as well as reduced petroleum imports. However, exports have also reduced by 11% MoM to UASD2.5bn. This is due to lower textile exports and PKR volatility, which likely keep exporters from remitting proceeds to Pakistan. Petroleum imports continued to shrink to c.USD1.5bn (-33% MoM).

PKR volatility and informal channels hinder remittances 

Remittances declined in Sep’22, to USD2.4bn (-11% MoM). Lower inflows from KSA, UAE and UK have reduced the overall base. The spread between actual and offered exchange rate coupled with active participation from informal channels dented remittance flows during the month. Looking ahead, currency volatility and increase in Pakistani worker registration in GCC countries may further increase remittance flows in the remainder of FY23. As per Board of Emigration and Overseas Employment (BEOE), around 617k Pakistanis have expatriated during 9MFY22TD compared to 288k and 225k during FY21 and FY20, respectively. Most of these expatriations have occurred towards Middle East countries which continue to enjoy better macros in a high oil price environment.

BoP turned negative again; assistance is much needed

The overall Balance of Payment (BoP) turned negative again in Sep’22 and stood at USD662mn against positive PKR438mn last month. During Aug’22, Pakistan received USD1.2bn IMF assistance under EFF facility. Going forward, to support overall BoP and Fx reserves, Pakistan is in dire need of support from international organizations and friendly countries. Despite the absence of fresh loans, PKR has appreciated to c.PKR221 from its all-time low of c.PKR240/USD, after Mr. Ishaq Dar assumed the finance ministry office and administrative measures were taken by SBP to deal with speculative activity.

Apart from this, recent floods damaged most part of Sindh and Balochistan and 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 to 2% as per fresh estimates provided by World Bank. Pakistan is expected to receive additional assistance of USD4bn from international bodies for flood assistance. We expect the pre-flood estimate of SBPs Fx reserves of USD15bn by end-FY23 to remain broadly intact.