Pak external account stays in the green zone as F/A counters the CAD

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    • Current Account (CA) in May 2014 reported a deficit of US$147mn vis-à-vis CA deficit of US$111mn in April 2014.  The higher Current Account Deficit (CAD) is because of 25%MoM higher trade deficit.
    • Meanwhile, support to the current account stemmed from 1) a services surplus of US$109mn on the back of Coalition Support Fund flows of US$375mn and 2) sharp growth in inwards remittances for the month of May (+21%YoY).
    • Despite disappointing CAD figures, Pakistan’s overall Balance of Payment (BOP) account booked a surplus of US$1.4bn in May 2014.
    • BoP surplus is led by Financial Account (F/A) surplus which was driven by 1) higher foreign direct investment and 2) project loan inflows worth US$1.1bn from multilateral organizations like the World Bank and the Asian Development Bank.
    • We continue to eye a reasonably comfortable overall BoP situation given the expected foreign flows by the end of this month where 1) IMF is likely to release its fourth tranche (worth US$550mn) and 2) privatization proceeds are anticipated to materialize via the recently held secondary public offering of UBL.

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    Higher trade deficit keeps CA in the red

    Pakistan’s Current Account (CA) reported a deficit of US$147mn in May 2014 visà- vis CA deficit of US$111mn in April 2014. The slight worsening of CAD is on account of 25%MoM higher trade deficit as imports rose by 8%MoM while exports reported a meager growth of 2%MoM. On the other hand, support to the current account stemmed from 1) a services surplus of US$109mn on the back of Coalition Support Fund flows of US$375mn and 2) sharp growth in inwards remittances in May 2014 which clocked in at US$1.44bn, up 21% YoY and 10% MoM, supporting overall Current Transfers. Cumulatively in 11MFY14, C/A deficit stands at US$2.577bn vs. US$2.157bn in the same period last year. The higher C/A deficit this year is because of higher services deficit as CSF flows this year (US$1.05bn) are lower compared to the same period last year (US$1.8bn). We flag the recent surge in crude oil prices (Arab Light oil prices have ticked up by 3% in June 2014) as the key risk to the Pak current account balance. 

    No alarm bells yet as overall BoP stacks up solid numbers

    Despite disappointing CAD figures, Pakistan’s overall Balance of Payment (BOP) account booked a surplus of US$1.4bn in May 2014. Note that this is the fourth consecutive month where Pakistan has reported an overall BoP surplus. Support to the overall external account is led by 1) higher foreign direct investment (US$611mn in May 2014 vs. US$81mn in April 2014) on the back of receipts from the 3G/4G licenses and 2) project loan flows of US$1.1bn from multilateral organizations like the World Bank and the Asian Development Bank. The same delivered a US$1.28bn Financial Account (F/A) surplus. Consequently, total net liquid reserves of the State Bank of Pakistan (SBP) surged by 20%MoM to US$8.7bn. We continue to eye a reasonably comfortable overall BoP situation given the expected foreign flows by the end of this month where 1) IMF is likely to release its fourth tranche (worth US$550mn) and 2) privatization proceeds are expected to materialize via the recently held secondary public offering of UBL.

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