AKD Quotidian about —: `Normal’ CA Deficit in Oct’11

Karachi: The 4MFY12 Current Account (CA) deficit has registered at US$1,555mn vs. a deficit of US$541mn in the corresponding period last year.

According to AKD Securities, however, this masks sequential improvement whereby the Oct’11 CA deficit was a contained US$220mn against a steep deficit of US$1,034mn recorded in Sep’11. MoM improvement comes on the back of both a reduction in the trade deficit and normalization in remittances and AKD maintains its full-year FY12 CA deficit projection at US$3.Obn. While AKD see risks across the medium-term, AKD believes this level of CA deficit is manageable. This should see the PKR depict relative stability vs. the US$ (contained depreciation of 1.2%FYTD) where AKD projects the PKR/US$ parity at 91.5 by Jun’12. Nevertheless, due to structural shortcomings in the economy, AKD does not rule out a return to an IMF program in the medium term where the import cover could drop to less than 2 months by mid-CY13.

CA Projections: The 4MFY12 CA deficit has clocked in at US$1,555mn, up 187%YoY. This is largely due to a sizeable deficit of US$1,034mn in Sep’11 and, as the Oct’11 CA deficit of US$220mn indicates, sequential CA deficits going forward should be contained. Accordingly, AKD maintains its full-year FY12F CA deficit projection at US$3.Obn based on a trade deficit of US$l5bn and remittances of US$1 2.5bn. Regarding the latter, 4MF12 remittances are up 23%YoY to US$4.32bn. While remittances growth is likely to ease in FY13, Pakistan’s Remittance to GOP ratio at 5.4% is still lower than 8.8% for Bangladesh, 8.0% for Sri Lanka and 12.3% for Philippines.

Currency movement: The PKR has depreciated by a contained 1.2%FYTD against the US$, while gaining 0.8% from its FY10 low of PKR87.86/US$. Considering that the sequential Current Account is expected to stay manageable across the near to medium term, AKD does not anticipate any sharp movements in the currency. Accordingly, AKD maintains its Jun’12 PKR/US$ projection of 91.5. In this regard, while AKD believes the stock of foreign exchange reserves will be enough for the next lyr, the import cover could drop to less than 2 months by mid-CY13. That said, this could be prevented by a potential return to an IMF program.

Leave a Reply