By: Saad Khan, Arif Habib Ltd.
Current account posts a surplus of USD 160mn for Dec-11
The country’s overall current account balance (C/A) for the month of Dec-11 turned positive to USD 160mn, after posting a continual deficit during the 5MFY12 averaging USD ~450mn/month, translating into a 1HFY12 C/A deficit of USD ~2.2bn compared to a surplus of USD 8mn in the corresponding period last year. The improvement in C/A is mainly attributed to contraction in trade deficit and high remittances received during the month. The overall balance of payment position posted a deficit of USD~76mn for Dec-11, compared to USD ~322mn in Nov-11, owing to slowdown in foreign inflows.
Slowdown in monthly import bill limits the trade deficit widening
The monthly import bill for Dec-11 slowdown to USD 3.1bn, showing a decline of 2% MoM. This limited further widening in trade deficit, which for the period 1HFY12 was up by 32% to USD 7.6bn.
Higher export earnings for the month
During the month of Dec-11 the overall exports registered a 7% MoM rise to the tune of USD ~2bn bringing the total 1HFY12 exports at USD 12bn (+~9%YoY).
Worker’s remittances continue to post strong growth
The worker’s remittances for the period 1HFY12; jumped by 20% YoY to USD 6.3bn, of which a USD 1.1bn was remitted in the month of Dec-11 alone, (+17% MoM).
All eyes on financial accounts
The financial account balance remained shallow owing to falling foreign inflows. The Foreign Direct (FDI) and portfolio Investments (PI) declined to USD 532mn and USD 97mn, respectively, during the period 1HFY12. However a net inflow of USD 112mn under FDI was recorded for the month of Dec-11, against USD 96mn in Nov-11 (+17%MoM).
Current account is likely to post a USD 3.3bn deficit by FY12
Given the small quantum of C/A surplus during the month, it would not surprise us when the revise figures – due next month start – would point towards a total different set of a story. Our contention mainly attributes the unusual import bill payments during the month and the rising mismatch between the FBS trade figures and that reported by SBP. Hence we continue to believe that country’s C/A balance will head back into deficit territory by the FY12-end. Our estimates suggest C/A deficit position for FY12 at USD 3.3bn or 1.6% of the GDP.