Pak external account registers a surplus yet again

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    • After a strong March 2014, Pak external account improved further in April 2014 where the overall balance of payments (BoP) reported a surplus of US$2.2bn while the current account reported a deficit of only US$55mn.
    • Cumulative 10MFY14 C/A deficit now stands at US$2.162bn vs. US$1.574bn in the same period last year. Note that the main difference is due to lower CSF flows this year.
    • Meanwhile, overall BoP accounts were impressive primarily because of receipts of US$2bn from the recently issued Euro Bonds by the Pak government.
    • This improvement is reflected in the net liquid reserves of the State bank of Pakistan(SBP) which surged by 38%MoM to US$7.4bn in April. Resultantly, average value of Pak rupee appreciated by 2.2%MoM in April 2014.
    • Given the additional financial flows worth ~US$1.5bn from bilateral / multilateral institutions materialized in May, overall BoP account in May is expected to stack up strong numbers as well and consequently keep the PKR/USD exchange rate outlook stable in the medium term.

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    April 2014 current account stays in the red zone

    Current account in April 2014 posted a deficit of US$55mn (vs. US$90mn in March 2014) on account of a slightly lower (-4%MoM) trade deficit of US$1.144bn. Note  that April trade deficit is also lower than the YTD FY14 average monthly trade  deficit of US$1.339bn as import growth (-1%MoM) continues to stay under control.  Meanwhile, customarily support to the current account balance did come from steady remittances of US$1.3bn (-2%MoM). With the April figure in the bag, cumulative 10MFY14 C/A deficit stands at US$2.162bn vs. US$1.574bn in the  same period last year. The increase in C/A deficit is because of a higher services  deficit due to lower coalition support fund flows (CSF) this year as only US$674mn  have been realized compared to US$1.8bn in the corresponding period last year.

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    Overall external account reading remains impressive

    The real silver lining is on the overall balance of payments front, where a surplus of US$2.2bn was reported in April compared to a surplus of US$992mn in March.  Note that this is the third consecutive month where Pak-BoP has reported a  surplus. This marked improvement is attributed to 3.88x MoM rise in the financial  account surplus on the back of receipts of US$2bn from the recently issued Euro  Bonds by the Pak government. Consequently, total net liquid reserves of the State bank of Pakistan (SBP) surged by 38%MoM to US$7.4bn. Improvement on the  external account front, reflected in the PKR/USD exchange rate in April 2014 where  average value of Pak rupee appreciated by 2.2%MoM. Given the additional  financial flows worth ~US$1.5bn from bilateral/multilateral institutions have  materialized in May, overall BoP account in May is expected to stack up strong numbers as well and consequently keep the PKR/USD exchange rate outlook  stable in the medium term.

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