Morning Call about – And the culprit is; IMF REPAYMENT! – Arif Habib Limited

Karachi, March 19, 2013 (PPI-OT): Repayment drags the current account into deficit Had there not been the repayment of Feb’13, Arif Habib Limited surely wouldn’t have seen a deficit as huge as USD 596mn during the month.

According to Arif Habib Limited with Feb’s deficit, Pakistan’s current account has once again entered into the dark, posting a deficit of USD 700m in 8MFY13 after staying surplus during 7MFY13. However, on YoY basis current account in 8MFY13 has shown a massive decline of 78%, against last year’s USD 3.2bn.

Hail to the capital account that came in as the biggest savoir recording 62x MoM rise in Feb’13 shrinking the overall balance to USD 191mn, down 55%. What’s more pleasantly surprising is the overall balance of payment deficit squeezing 65% in 8MFY13 to remain under USD1bn.

(USD mn) Feb’13 Jan’13 MoM 8MFY13 8MFY12 YoY
Exports

1,920

2,116

-9%

16,047

16,195

-0.9%

Imports

3,156

3,398

-7%

26,217

27,176

-3.5%

Trade Balance

(1,236)

(1,282)

-4%

(10,170)

(10,981)

-7.4%

Services (Net)

(254)

(180)

41%

(178)

(1,884)

-90.6%

Income (Net)

(346)

(199)

74%

(2,311)

(1,939)

19.2%

Remittances

1,028

1,090

-6%

9,235

7,436

24.2%

FDI

(25)

(4)

525%

505

559

-9.7%

CAB

(596)

(315)

89%

(700)

(3,235)

-78.4%

Financial Account

357

119

200%

(167)

561

n.m

Capital Account

62 1

62x

201

143

40.

6%

Overall Balance

(191)

(423)

-55%

(923)

(2,627)

-65%

Source: State Bank of Pakistan, Arif Habib Research

Dear Current Account; USD 596mn deficit is a huge amount!!

The IMF loan repayment scheduled for Feb’13(USD 594mn) was expected to drag the already frail current account and so-it-did! Evident from Income account’s whopping 74% MoM jump in Feb’13, the repayment remained the biggest concern for the month. Moreover, no breather came in from the exports side as Arif Habib Limited saws those declining 10% MoM during the month mainly due to 15% lower food exports.

Imports, however, have been kind enough to sustain at lower levels posting a decent decline of 7% MoM. As hinted above, current account has projected an entirely different picture in 8MFY13. Gap narrowed 78% YoY (USD 700mn) backed off by decline of 3.5% YoY and a mere 0.9% YoY in imports (USD 26bn) and exports (USD 16bn), respectively.

Project grants worth USD 64mn received during the month of Feb’13 helped squeeze the overall deficit balance to USD 191mn against last month’s USD 423mn. With this 8MFY13 BOP shrank 65% YoY to USD 923mn against last year same period’s USD 2.6bn.

Forex reserves and Exchange rate stand where?

Given the weak financial account and risks that come with it, the government will resort to its already deteriorating foreign exchange reserves. Currently the foreign exchange reserves stand at ~USD 12bn, but going forward it is likely to come under further pressure. This will translate into further rupee devaluation that Arif Habib Limited expects to reach at 101 per dollar by the end of FY13.

Leave a Reply