AKD Quotidian about — Pakistan Economy: CAD < 1% of GDP in 7MFY14 - AsiaNet-Pakistan

AKD Quotidian about — Pakistan Economy: CAD < 1% of GDP in 7MFY14

February 20, 2014 | Brokerage | Share:

Karachi, February 20, 2014 (PPI-OT): The CA deficit for Jan’14 has clocked in at US$464mn vs. a revised Surplus of US$283mn in Dec13.

According to AKD Securities, as a result, the 7MFY14 CA deficit has been recorded at US$2,05Smn (less than 1% of GOP) compared to a deficit of US$441mn in the same period last year. While the CAD remains contained, the primary reason behind this deterioration is receipt of hefty CSF flows last year US$1.8bn), normalizing for which the CAD has actually reduced by 8%YoY.

In addition, there are positives on the fiscal front as well with the 1IIFYI4 fiscal deficit recorded at 2.1% of GOP, a run rate that Is immensely better than the 8.0% fiscal deficit recorded in full-year FY13. While pressure points remain and a sustained turnaround in the economy remains contingent on GoP execution capability e.g. privatization, 3G auction etc.), AKD Securities believes macroeconomic metrics are relatively comfortable. With the PkR also depicting stability of late.

AKD Securities reiterates that the SBP will likely hold interest rates unchanged in the next MPS. For which the CAD has actually reduced by 8%YoY. In addition, there are positives on the fiscal front as well with the IHFYI4 fiscal deficit recorded at 2.1% of GOP, a run rate that is immensely better than the 8.0% fiscal deficit recorded in full-year FY13.

While pressure points remain and a sustained turnaround in the economy remains contingent on GoP execution capability e.g. privatization, 3G auction etc.), AKD Securities believes macroeconomic metrics are relatively comfortable. With the PIR also depicting stability of late, AKD Securities reiterates that the SBP will likely hold interest rates unchanged in the next MPS. For the market, this could mean that high D/V stocks, particularity the recently battered HUBC and KAPCO, may come into the limelight again.

Contained CAD: The CA deficit for Jan14 has docked in at US$4S4mn vs. a revised surplus of US$283mn in Dec13, the sequential deterioration partly attributable to a weaker trade balance on lower exports. As a result, the 7MFYI4 CAD has been recorded at USS2055mn <1% of GOP) compared to a deficit of US$441mn in the same period last year. However, normalizing for the receipt of CSF flows last year (US$l.8bn) the CAD has actually reduced by 8%YoY with the improvement driven by a lower import bill likely on lower international oil prices.

Fiscal side showing improvement: The increase in power tariffs has likely Fed to a rawer subsidy burden while tax revenue has also picked up post the increase En GST. As a result, the 1HFYI4 fiscal deficit has docked in at 2-1% of GOP vs. a deficit of 26% of GOP En the same period last year.

In this regard, the current run rates much lower than the full-year FYI 3 fiscal deficit of 80% of GOP where AKD Securities note that in 2HFVI 3 in addition to high power subsidies, the GOP also embarked on an pre-election infrastructure development For 2HFYI4, risks on the fiscal front include possibly higher defence spending in case of a potential operation against militants and any increase in PSDP.

Investment perspective: While pressure points remain, AKD Securities believes macroeconomic metrics are relatively comfortable at the moment which could cause the SBP to hold interest rates unchanged in the next MPS. With[n this backdrop, high DIV stocks, particularly the recently battered HUBC and KAPCO. may come into the limelight again- On the flipside. there appears to be room for profit taking n Textiles (GSP P[us did not reflect in Jan14 exports) and Cements (absence of PSDP splurge ala last year).

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