Morning Call about 2MFY12 current account post a deficits of USD 189mn

Karachi: The country’s current account deficit for 2MFY12 was recorded at USD 189mn compared to USD 1,016mn witnessed in corresponding period last year.

According to Arif Habib Limited, a surplus of USD 251mn in financial account during the period resulted in a muted balance of payment deficit of USD 28mn against USD 786mn same period last year. Strong growth in remittances alongwith robust export earning continues to remain underlying factors for current account deficit shrinkage. For the month of Aug’11 alone the current account deficit was recorded at USD 89mn against USD 100mn in Jul’11.

Remittances and export growth continues to support CAB…

The country’s workers remittance continues to post a promising picture, registering in excess of 40% YoY growth (USD 1.3bn, a record high) during 2MFY12. In a similar fashion the export growth remains strong, posting a growth of 23% YoY, (USD 4,252mn). However despite such progressing stats, inflexible import payments registering ~14% YoY (USD 6.7bn) slipped the overall trade balance into a negative territory, a 2% YoY rise or USD 2.4bn. Imports were largely driven by oil payments which for the period amounted to ~37% of total import bill. The rising cost in oil imports is reflected by a corresponding decline in oil imports last year same period, while downward sticky prices keeps the import bill at high end.


Balance of Payment  Aug-11  Jul-11 %MoM 2MFY12 2MFY11 %YoY
Current Account Balance (89)  (100) n.m (189)  (1,016)  -81%
Exports 2,131 2,121  0%  4,252 3,465 23%
Imports 3,518 3,171 11% 6,689 5,852 14%
Trade Deficit (1,387) (1,050) 32% (2,437) (2,387) 2%
Remittances 1,310  1,097 19% 2,407 1,724  40%
Capital Accounts  – 2  n.m  2  – n.m
Financial Accounts  79 172 -54% 251 177 42%
Direct Invest. (FDI) 21 91 -77% 112 187  -40%
Port. Invest. (PI)  – n.m  –  –  n.m
Overall Balance 73 (101) n.m  (28) (786)  n.m



Direct and portfolio investment remains sluggish

On the flip the financial account balance posted a 42% YoY rise in 2MFY11, to USD 251mn. While the Foreign Direct Investments (FDI) which posted a YoY decline of 40% to USD 112mn for 2MFY11. The improvement in financial accounts was marked by a surplus of USD 369mn over deficit of USD 199mn same period last year, in investments assets other than direct and portfolio investment.

Rupee under pressure over high oil payments…

USD/PKR exchange rate parity closed at its lowest point on 30-aug-2011, registering 1.4% depreciation during 2MFY12. This Arif Habib Limited believes mainly owes to forward booking of oil import payment. Going forward Arif Habib Limited expects the PKR to remain under pressure as oil demand would increase, pushing the import volume further in coming months. While Arif Habib Limited remains bearish on price as Arif Habib Limited notes a declining trend (Arab light USD 105/bbl as of 18 Aug’11), which have remained elevated in much of the 2HFY11, USD 107.4/bbl on average against USD 79.1/bbl in 1HFY11, (+38%). This Arif Habib Limited believes would have major implications on the country’s imports as ~38% of the total Imports are related to petroleum related products. Arif Habib Limited estimates 3% fall in price of oil results in 1.8% cut down the total import bill per month.


Arif Habib Limited foresees a current account plunging into deficit in FY12, therefore plugging in the deficit gap will be lade on financial account. However, Arif Habib Limited doubts that the financial inflows in FY12 would be enough to bridge the void left by current account deficit. Arif Habib Limited fears that financial inflows may not exceed USD 2bn, owing to global economic slowdown, political and economic turbulences. Monetization of funds under military aid (expected aid of USD 2.4bn per year); Coalition Support Fund (CSF) will support BoP, while most importantly the possible cancellation IMF SBA program extension will be closely watched.

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