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Karachi, September 19, 2012 (PPI-OT): A sigh of relief with surpluses in external account
Pakistan’s external account showed sign of relief by posting surpluses in current and capital accounts as evident in the figures released by State Bank of Pakistan for 2MFY13.
According to Arif Habib Limited, the current account marked a surplus of USD 919 million for 2MFY13 compared to a deficit of USD 261 million witnessed in corresponding period last year. For the month of Aug-12 alone the current account surplus clocked in at USD 1,240 million against deficit of USD 321 million in Jul-12.Moreover, a surplus of USD 13 million in capital account also supported the balance of payment which stood at USD 20 million against a deficit of USD 28 million in the same period last year.
| Balance of Payment (PKR million) | Aug-12 | Jul-12 | MoM | 2MFY13 | 2MFY12 | YoY |
| Current Account |
1,240 |
(321) |
-486% |
919 |
(261) |
-452% |
| Exports of Goods |
2,043 |
2,018 |
1% |
4,061 |
4,257 |
-5% |
| Imports of Goods |
3,106 |
3,365 |
-8% |
6,471 |
6,785 |
-5% |
| Trade Balance(Goods and Serv) |
(355) |
(1,785) |
-80% |
(2,140) |
(3,315) |
-35% |
| Foreign Direct Investment |
(9) |
42 |
-121% |
33 |
100 |
-67% |
| Remittances |
1,259 |
1,205 |
4% |
2,464 |
2,407 |
2% |
| Financial Account |
(498) |
(84) |
493% |
(582) |
356 |
-263% |
| Capital Account |
5 |
8 |
-38% |
13 |
2 |
550% |
| Overall Balance |
628 |
(608) |
-203% |
20 |
(28) |
-171% |
Meager growth in remittances and decline in imports back CA surplus
The persistent projection of country’s workers remittance continued in Aug-12, however at a slow pace, posting a meager 2% YoY increase translating into USD 1.3 billion. This brings total remittances at USD 2.5 billion during 2MFY13. On a positive side, imports declined by 5% YoY, (USD 6,471 million) during 2MFY13. However despite such promising picture, a dip of 5% in exports (USD 4 billion during 2MFY13) slipped the overall trade balance into red zone clocking in at a deficit of USD 2.1 billion in the period under review.
Net foreign investments decline while reserves prove to be the silver lining
The financial account balance posted a whopping 263% YoY decline in 2MFY13, depicting a deficit of USD 582 million. This was mainly due to the Foreign Direct Investments (FDI) which declined by 67% YoY to USD 33 million. On the flip, payments from US under Coalition Support Fund (CSF) and Kerry Lugar Bill of USD1.18 billion and USD 0.2 billion respectively, received during August proved to be the silver lining for the external account.
What does the future hold?
Although the current account is projecting improvements emanating from remittances inflow, declining imports and external funding (mainly in the form of CSF), but Arif Habib Limited is of the view that these silver linings would be short lived. Arif Habib Limited expects the foreign direct investment (FDI) to remain weak due to the perceived risk associated; yet again inclining Arif Habib Limited’s reliance on external aid and remittances to support the current account. The main threats that lie ahead are the increasing international oil prices, repayments of IMF loan (~ USD 2.8 billion in FY13 of which USD 0.8 billion is due in 3QFY13), materialization of 3G auction payments and international relations especially with US. Apparently, things don’t seem to be working out in favor of Pakistan, hence Arif Habib Limited foresees C/A in the red zone in 1HFY13.