AKD Quotidian about — Economy: CA slips up

Karachi, September 20, 2013 (PPI-OT): The CAD for Aug’13 has registered at US$575mn vs. a minor deficit (revised) of US$57mn in Jul’13.

According to AKD Securities this substantial rise in the deficit was primarily due to i) 10%MoM decline in exports to US$1,983mn, ii) 4%MoM increase in import bill and iii) 12%MoM decline in remittances post Ramadan which fell in Jul’14. As a result, the2MFY14 Current Account deficit has shot up to US$632mn, showing significant deterioration compared to a surplus of US$582mn during 2MFY13.

The latter however was largely due to CSF receipts ofUS$1.2bn in Aug’12. That said, the CA balance registering a high sequential deterioration encapsulates a weakening BoP position and added stress going forward. In this regard, although the IMF has released the first instalment of US$544mn, upcoming repayments coupled with delayed release of other inflows (e.g. CSF) may push the SBP’s reserves lower over the next few months.

While this may keep the PkR/US$ parity under pressure in the near-term, AKD Securities sees improvement in 2HFY14 on the back of anticipated release of foreign flows/revival of the privatization process. As such, AKD Securities maintain Jun’14 PkR/US$ exchange rate forecast of 107.64.

2MFY14 CA deficit: The CAD for Aug’13 has registered at US$575mn, up in 2HFY14 on the back of anticipated release of foreign flows/revival of the privatization process. As such, AKD Securities maintains AKD Securities Jun’14 PkR/US$ exchange rate forecast of 107.64. sharply from a minor deficit of US$57mn in Jul’13 (restated from a surplus of US$46mn).

The sequential rise in deficit was primarily due to i) 10%MoM decline in exports to US$1,993mn (possible slowdown in textile exports), ii) increase in import bill (+4%MoM) possibly due to higher sequential oil imports and iii) decline in remittances (-12%MoM) largely due to seasonal factors.

As a result, the CA for 2MFY14 registered a deficit of US$632mn compared with a surplus of US$582mn in 2MFY13. That said, the latter was largely due to receipt of CSF amounting to US$1.2bn in Aug’12. Excluding this, the 2MFY14 CA deficit has widened by 6%YoY on a normalized basis. Going forward, note that Pakistan expects the US to release US$1.2bn in CSF across FY14 compad
to release of US$1.8bn in full-year FY13.

Risks on BoP position remain: While the 2MFY14 CA deficit is similar to that recorded in the same period last year (on a normalized basis), the sharp sequential deterioration encapsulates a weakening BoP position and added stress going forward. In this regard, the BoP position may deteriorate over the next few months in view of 1) IMF debt repayment of US$420mn in Nov’14, 2) seasonal uptick in oil imports in winter, 3) possible delays in the PkR/US$ parity under pressure although AKD Securities believes much of this will be skewed in the first half of the fiscal year with improvement expected in 2HFY14 on the back of anticipated release of foreign flows/revival of the privatization process. As such, AKD Securities maintains AKD Securities Jun’14 PkR/US$ exchange rate forecast of 107.64 which implies currency depreciation of 8.8%YoY. Recall that the PkR has shed 6.2%FYTD vs. the US$.

Investment perspective: Although the SBP governor has recently given his vote of confidence on the PkR and news reports point to imminent steps such as reducing the quantum of oil imports (maintaining a reduced stock), AKD Securities feel the PkR/US$ parity will continue to face pressures, particularly over the next few months. Within this backdrop, sectors such as Oil and Gas the next few months. Within this backdrop, sectors such as Oil and Gas (+8%FYTD), Power (+9%FYTD) and Textiles (+6%FYTD) can potentially bounce back having underperformed the KSE-100 of late (the Index is up 12%FYTD).

The post AKD Quotidian about — Economy: CA slips up appeared first on AsiaNet-Pakistan.

The post AKD Quotidian about — Economy: CA slips up appeared first on AsiaNet-Pakistan.

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