Pakistan’s current account deficit (CAD) registered an unexpectedly low figure of USD 47mn during Mar’21 against our estimates of USD 500mn. The deviation largely emanated from SBP’s trade balance figures (USD 2.6bn) undershooting provisional figures (USD 3.3bn). On a cumulative basis, Pakistan’s current account recorded a surplus of USD 959mn in 9MFY21 against a deficit of USD 4,147mn SPLY.
– Trade deficit remains elevated: Pakistan’s trade deficit continues to remain elevated as it grew by 18% YoY to USD 18.7bn. Import growth (+9% YoY) was led by higher petroleum prices, recovering economic activity driving consumption and certain anomalies including high wheat and cotton imports amidst domestic shortages. Exports (+2% Y/Y), in turn, found support from the textile segment, which has benefitted from recovering demand as global economies open. Onwards, we project the trade deficit to remain high as economic recovery takes precedence and the import of machinery picks pace as industries avail SBP’s incentivized financing (TERF & LTFF).
– Remittances continue to save the day: The elevated remittances (+26% YoY) have continued supporting Pakistan’s external account imbalances. The disruption of informal channels and incentives by the SBP to utilize formal banking channels have resulted in the aforementioned increase in remittances. The remittances in Mar’21 remain elevated (+43% YoY) and we project Apr’21 figures to reflect similar levels on account of Ramzan and Eid.
– Interest rate hike likely pushed back over comfort on external accounts: The comfort on external accounts suggested by a likely current account surplus in FY21 has given the SBP ample room to keep interest rates low without the risk of inducing external account imbalances. Moreover, the ongoing 3rd, more infectious, COVID-19 wave has compelled the federal government to impose stricter lockdowns. Consequently, our original thesis of a rate hike by Jul’21 is likely to be pushed back further.