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Pakistan Current Account Deficit

Current Account Deficit Pakistan Account Deficit Current Account Pakistan Current Deficit

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#1
Amin Khan

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    Pakistan Current Account Deficit


    May'12 CA widens by 50% MoM
    The May'12 Current Account deficit has come in at US$414mn, widening by 50.5%MoM. As a result, the 11MFY12 CA deficit has registered at US$3.77bn vs. a deficit of just US$79mn in 11MFY11.The expansion in CA deficit is primarily due to wider trade deficit (goods and services), which reached US$16.4bn in 11MFY12 vs. US$11.18bn in 11MFY11, up 47%YoY following a rising import bill (up 13%YoY) and flat exports (down 0.3%YoY). As such, the robust trend in remittances, up 20%YoY to US$12.06bn in 11MFY12, while supporting the current account on one hand, has failed to contain pressure on the currency (PkR-US$ depreciation of 9% FYTD). On the Balance of Payments front, FDI continued on a lackluster trend, declining by 48%YoY in 11MFY12 leading risk to fx reserves from upcoming loan repayments to IMF (~US$115mn in Jun’12 and US$417mn in Aug’12) underpinning latent concerns on the PkR. While BoP risks remain, positives include 1) uptick in Pak-US relations with likely reopening of Nato supply routes and potential unlocking of foreign flows (US$2.9bn in CSF payments outstanding), 2) falling global commodity prices (TRJ-CRB index down 10% FYTD), particularly oil could ease pressure on the trade account going forward. In this regard the SBP in its recent MPS (DR unchanged at 12%) reiterated, that one third of Pakistan’s total import bill is oil payments, and considering falling oil prices (Arab light down 24% from peak FY12TD levels ) is a significant positive and should ease concerns on near term reserve erosion with scheduled US$2.8bn IMF repayment in FY13.

    Trade Deficit: The 11MFY12 trade deficit (goods) has been recorded at US$13.9bn up 44%YoY against the deficit of US$9.6bn in 11MFY11. Exports were recorded flat at US$22.6bn in 11MFY12. Going forward, concerns emanate from lower cotton prices (down 20% since peak) and concerns regarding the global economy with falling demand from the EU. Regarding imports, 11MFY12 imports registered at US$36.5bn, up 12%YoY due to a sticky import bill in 1HFY12. Recent fall in global commodity prices (TRJ-CRB Index is down by 16% from CTYD peak) is a positive particularly if oil prices continue to come off. In our view the recent trend in commodity prices (Arab light down 24% from peak) should ease BoP concerns going forward considering one third of Pakistan’s import bill is oil. We expect Trade deficit to clock in at US$17bn in FY13.

    Current Transfers: 11MFY12 current transfer balance recorded at US$ 15.7bn, up 12%YoY vs US$14bn in 11MFY11. Current Transfers have been supporting the current account balance lead by remittances. Remittances growth continued at a robust trend and logged in at US$12.06bn in 11MFY12, up 20%YoY. According to World Bank estimates the remittances flows to developing countries in 2011 increased by 8% and are forecast to grow at 7%- 8% per annum till 2014. Pakistan’s outperformance underscores government efforts to divert remittances from the informal to the formal channel with the launch of the Pakistan Remittances Initiative (PRI) the share of worker’s remittances coming through the banking channel has increased sharply, from 75% in FY10 and an estimated 91% in FY12. We expect remittance growth of 14% YoY in FY13F to US$15bn.

    CA Outlook: The CA has posted a deficit of US$414mn in May'12, bringing the country's 11MFY12 CA deficit to US$3.8bn vs. a marginal deficit of US$79mn in the corresponding period last year. Within this backdrop, the macroeconomic environment appears challenging and risks remain in view of FX reserves depletion due to 1) upcoming IMF repayments (~US$115mn in Jun’12 and US$417mn in Aug’12), 2) continued decline in FDI (down 48%YoY in 11MFY12) and 3) non materialization of ~US$2.5bn from CSF/Etisalat/3G proceeds. This opens up the possibility of Pakistan entering into a fresh IMF program by 2013. That said, current trend in global commodity prices could potentially result in CA numbers delivering +ve surprises in 1QFY13 while improving Pak-US relationship could be a key swing factor.
    (AKD)
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    #2
    Amin Khan

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    Pakistan ranks 13 in failed states index
    From Web Edition

    WASHINGTON: Pakistan, a country is run by a civilian elite that steals all it can and pay almost no taxes, has been ranked 13th in the latest ranking of failed states.

    The unique ranking compiled by the prestigious Foreign Policy magazine is topped by African countries Somalia (114.9 points), Congo (111.2), Sudan (109.4), Chad (107.6) and Zimbabwe (106.3).

    Afghanistan with 106 points is ranked at number 6, followed by Haiti, Yemen, Iraq and Central African Republic.

    Pakistan with 101.6 points, the magazine said, is ranked 13, a slight improvement from the previous two years. In 2011 it was ranked 12th in the list of failed states, while in 2010 and 2009 it was ranked 10th.

    "The country is run by civilian elite that steals all it can and pays almost no taxes," Robert D Kaplan, the chief geopolitical analyst at Stratfor, wrote for the Foreign Policy.

    The absence of the state makes for 20-hour daily electricity blackouts and an almost nonexistent education system in many areas," he wrote.

    Explaining the reasons for Pakistan being in the list of a failed state, Kaplan said the root cause of these manifold failures, in many minds, is the very artificiality of Pakistan itself: a cartographic puzzle piece sandwiched between India and Central Asia that splits apart what the British Empire ruled as one indivisible subcontinent.
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    #3
    fasee

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    i guess redcution in fuel imports shud be helping in reducing the C/A deficit
    It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

    #4
    Amin Khan

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    CA deficit surge to USD3.77bn, trade def. main culprit
    An update on Current Account Deficit, as per the figures published by SBP along with its outlook.

    CA posted deficit of USD3.77bn during 11MFY12
    The current account deficit swelled to USD3.77bn during 11MFY12 (July-May) compared to deficit of just USD79mn last year, up by whopping USD3,691mn. The main reason for this widening CA gap this year is huge trade deficit which has swell to USD13.8bn (up 44% YoY) this year, whereas it was USD9.6bn during same period last year. The widening deficit gap includes rising import bill (up 13% YoY) and flat exports (down 0.3% YoY). Furthermore, the State Bank of Pakistan reported that the current account deficit stood at USD414mn in May-12 as against USD275mn in April-12 up 50%MoM.

    Imports down 0.9%YoY, export decline by 6%YoY during May-12
    The statistics also reveals that the country's exports value and volumes stood on the declining side to reach at USD22.64bn during 11MFY12 period as against USD22.7bn recorded during same period last year, down by meager 0.3%YoY. On the other hand, the import during same period were USD36.5bn, up 13%YoY from USD32.3bn recorded last year. On monthly basis, country's exports were valued at USD2.17bn, which was 6% YoY lower than the level of USD2.2bn during May-11. However, imports were valued at USD3.32bn in May-12, registering a decline of 0.9% YoY over the import of USD3.35bn during May-11, imports during this year were mainly supported by decline in international oil prices.

    Remittances an only positivity in CA, up 13.5%YoY during May-12
    The workers' remittances inflows offered considerable support to the current account as it posted the growth of 19.5%YoY during 11MFY12 to stand at USD12.1bn compared to USD10.1bn recorded last year. Remittances during May-12 stood at USD1.19bn compared to USD1.05bn during May-11, showing surge of 13.5%YoY.

    Outlook: FX Reserves depletion risk ahead
    The current account deficit will remain a big challenge in upcoming months and risk remain of FX reserves depletion on the back of upcoming IMF repayments, continued decline in FDI (48% YoY in 11MFY12) and absence of foreign flows. However, on the other hand, the declining trend of international oil and commodity prices could potentially result in CA numbers delivering some relief in 1QFY13. Also expected improvement in Pak US relationship could be a key positive development for re-initiation of CSF program and other civilian and military aid foreign flows which will decrease the pressure on country's external account.
    (InvestCap)
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    #5
    Amin Khan

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    Current Account Deficit widens by 48x in 11MFY12
    CA deficit swells to USD 3.8bn on account of 48% YoY rise in trade deficit
    The current account deficit in 11MFY12 swelled by 48x YoY amounting to USD 3.8bn. However in May-12 the deficit shrank by 24% YoY to USD 414mn compared to USD 545mn corresponding period last year. As a result of the soaring CA deficit, the country’s overall balance of payment posted a deficit of USD 327mn in May-12 as compared to a surplus of USD 143mn during May-11. Moreover, a severe deterioration of 112% YoY in BoP was registered in 11MFY12. The primary reason behind this was the trade deficit, which widened to USD 16.5bn, depicting a rise of 48% YoY. Notwithstanding the robust increment in remittances, current account balance remained in the red zone mainly on account of swelling import bill.

    11.3% YoY increase in imports barricade growth in current account
    Imports during 11MFY12 increased by 11.3% YoY amounting to USD 43.7bn as compared to USD 39.2bn in 11MFY11. The major factor behind this hike was international crude oil price (Arab Light), averaging USD 111.8/bbl depicting a rise of 19% YoY. The import of petroleum group products (as of Apr-12) grew by 43.5% YoY during 10MFY12. Meanwhile, total volume of petroleum goods imported stood at 16.2mn tons during 10MFY12, depicting a decline of 5.8% YoY. It is evident from this break up that the hike in imports was mainly due to price increase rather than volumetric increase. Declining oil prices are expected to provide breathing space for the current account going forward. The government has targeted imports of around USD 43bn in FY13, which given the declining oil price is likely to be achieved.

    Exports seek positive triggers to climb up
    Regardless of an increase in the unit values of the majority of items during 11MFY12, a decline in the export volume was observed due to the adverse effects of the energy crisis domestically, and the sluggish international demand. The circular debt issue remained the root cause for declination in the petroleum group exports during 11MFY12, with crude oil imports going down by 9% YoY. A negative export growth of 3% in 11MFY12 to USD 27.2bn was largely attributed to the lackluster exports of high value added items such as knitwear, bed wear, towels and readymade garments. Furthermore, the declining cotton prices pose yet another question mark on the country being able to meet its export target of USD 25.8bn.

    Higher remittances shaping as a major relief to BoP
    Inflows in the form of remittances during 11MFY12 reached to USD 12.1bn,a 20% YoY improvement, when compared with USD 10.1bn in the corresponding period last year. The target of USD 13bn seems quite achievable, looking at the upward trend of inflows. Remittances continued the momentum of their strong growth, posting a 14% YoY increase in May-12 to USD 1.2bn compared to USD 1.05bn in May-11.
    (AH)
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    #6
    Amin Khan

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    Economy : Remittances offers some breather to the Current Account…
    • The State Bank of Pakistan (SBP) has released the latest numbers of current account. As per the data, current account deficit has reached US$3.77bn as against US$79m in the same period last year. This huge increase in current account deficit was mainly because of higher trade deficit which has increased by 44% YoY to US13.88bn.
    • Total exports showed flat trend whereas total imports surged by 13% YoY to US$36.52bn in 11MFY12 as a result of this, total trade deficit has increased by 44% YoY.
    • The workers’ remittances totalled US$1.45bn in May, 2012, up 7% MoM. This brought the total workers inflows to US$12.07bn during the eleven months of FY12, marking a YoY growth of 12%. Remittances have offered some breather to the current account especially when other inflow channels have dried out.
    • No major change in current account is expected in the last month of FY12. We believe current account deficit may touch US$4.0bn in the full year of FY12. Consequently, the country would be forced to enter into another IMF program to finance current account deficit.

    (SC)


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