Morning Call about Trade Balance Economy – Arif Habib Limited

Karachi, July 11, 2012 (PPI-OT): Trade deficit for the FY12 shows a 36%YoY widening

Trade deficit for FY12 shows a 36%YoY widening Pakistani’s trade deficit clocked in at USD 21.3 billion posting a 36% YoY in FY12 end. Overall imports bill rose by 11%YoY to USD 44.9 billion, whereas exports declined by 5%YoY. However, on a positive note, the country’s remittances witnessed a rise of 17.7% YoY during FY12, thus providing relief to the current account.

 

In USD billion

In PKR billion

FY11FY12%ChgFY11FY12%Chg
Imports404511%3,4554,00916%
Exports2524-5%2,1212,1120%
Trade Deficit(16)(21)36%(1,334)(1,897)42%

On a monthly basis the trade deficit increased by 6% amounting to USD 1.8 billion in Jun-12. The prime factor that resulted in widening of monthly deficit was 2.3%MoM rise in imports reaching up to USD 3.9 billion. However, this was comparatively lesser than the previous month rise of 3.1% (May-12). Arif Habib Limited thinks this shrinkage in imports was due to lower oil based bill, owing to a fall in international oil prices. Arab Light prices came down from USD 119/bbl (start of May-12) to USD 98/bbl by the end of Jun-12. On the other hand, exports during the month depicted a decline of 0.8%MoM to USD 2.2 billion. In Arif Habib Limited’s view, this contraction was primarily on account of descending cotton prices.

 Jun-12May-12%M/MJun-11%Y/Y
Imports3,9793,8912%3,8633%
Exports2,1412,159-1%2,422-12%
Trade Deficit(1,838)(1,732)6%(1,441)28%

Remittances rose to record USD 13.2 billion in FY12 – a 17.7% YoY rise

Home remittances during June 2012 jumped by 1.4% YoY to USD 1.2 billion compared to USD 1.1 billion in June 2011; taking full years remittances up by to USD 13.2 billion. This marks a 17.7% YoY rise from last year’s remittances of USD 12.1 billion. On a MoM basis however, June 2012 witnessed a contraction of 6% in remittances. The country has been witnessing a strong inflow of remittances since the introduction of Pakistan Remittance Initiative (PRI) in Apr-09 by SBP.

Outlook

The drop in oil prices during the last two months of FY12 came as a positive development, as it reduced the extent to which trade deficit would have widened had prices remained at its peak. Going forward, FY13 the overall trade deficit seems bleak. Further decrease in Pakistan exports, would be a worrisome factor. Nevertheless, if in FY13 the government takes austere measures to monitor oil imports, Arif Habib Limited still can narrow down Arif Habib Limited’s import bills. Thus, a trigger in exports along with reduced imports is very much needed to improve the worsening of trade balance.