Karachi: The Current Account deficit for Feb’12 has registered at US$260mn, down 29%MoM from revised Jan’12 numbers.
According to AKD Securities, as a result, the 8MFY12 CA deficit has widened to US$2,952mn vs. a slight deficit of US$194mn in 8MFY11. The expansion in CA deficit is primarily due to a widening of the trade deficit, which reached US$12.4bn in 8MFY12 vs. US$8.1 billion in 8MFY11, up 53%YoY following a rising import bill (up 16%YoY) and flattish exports (up 5%YoY). On a positive note, the remittances trend has been robust; up 23%YoY to US$8.59bn in 8MFY12 while ‘other’ current transfers have led to a MoM contraction in the CA deficit. Going forward, considering IMF repayments appear below-the-line, AKD Securities does not see major incremental pressure on the CA although Balance of Payments concerns remain with SBP’s liquid reserves down by 3%MoM/14%YoY to leave import cover at 3.6 months. In this regard, consistent IMF principal retirements and non-materialization of foreign flows (CSF/Etisatat/3G proceeds) pose risks to the BoP profile beyond 2012.
Wider trade deficit: The 8MFY12 trade deficit (goods) has come in at US$10.51bn vs. US$734bn in 8MFY11, wider by 43%YoY. In this regard, 8MFY12 exports at US$16.2bn were up by a contained 5%YoY due to lower cotton prices (FY12TD avg. of US$98.14/lb lower by 28% vs. FY11 avg.) and a weaker global economy. 8MFY12 imports registered at US$26.76bn, up 18%YoY on the back of a rising oil import bill (Arab Light – FY12TD avg. of US$110.89/bbl higher by 19% vs. FY11 avg.). Accordingly, AKD Securities upwards revise AKD Securities’ FY12 trade deficit (goods and services) estimate to US$18bn i.e. 7% of GDP.
FY12F CA deficit at 1.7% of GDP: The CA has posted a deficit of US$260mn in Feb’12, bringing the country’s 8MFY12 CA deficit to US$2.95bn vs. a marginal deficit of US$194mn in the corresponding period last year. Recent trend should sustain which will lead to the CA posting a deficit of at least US$4.0bn (1.7% of GDP) in FY12F. Within this backdrop, the macroeconomic environment appears challenging and risks remain in view of FX reserves depletion due to 1) upcoming repayment of -US$400mn to IMF in May’12, 2) continued decline in FDI (down 45%YoY in 8MFY12) 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 with generic interest rate increases/PkR devaluation coming into play. While negative for the broader market, higher NIMs for Banks would likely compensate for incremental asset quality stress particularly as limited private sector credit has been extended in the last few years. AKD Securities’ top picks are UBL and ABL.