Saad Khan, Arif Habib Ltd.
Pakistan Trade deficit: Pakistan’s trade balance swelled by 72% YoY in Apr-12 to USD 1.5bn compared to USD 0.9bn in Apr-11, taking 10MFY12 deficit to USD 17.6bn. This was mainly on account of a 16% YoY jump in imports, led by increasing oil prices. Though the country imported a 3% less oil in Apr-12 compared to Apr-11, however an 11% and 8% YoY increase in FO and Mogas prices in the international market turned out to be the key factor in driving the overall imports. Exports on the other hand suffered a 5% YoY contraction in Apr-12, mainly on account of falling cotton prices which led to a fall in overall textile related exports.
Remittances in 10MFY12 surged by 20% YoY
Remittances during 10MFY12 have grown by 20% YoY to USD 10.9bn from USD 9.0bn during the same period last year. On a MoM basis however, Apr-12 remittances remained stagnant at USD 1.1bn, although the figure is higher by 11% on a YoY basis. This rise in remittances came about after introduction of Pakistan Remittance Initiative (PRI) in Apr-09 by SBP. The countries from where the majority of this growth emanated were the US, UK and Saudi Arabia, remittances from where increased by 15% YoY, 28% YoY and 43% YoY to USD 1.9bn, USD 1.3bn and USD 3.0bn respectively in 10MFY12.
Global slowdown to mitigate the impact of falling oil prices
Oil prices are mapping a downwards trajectory since Apr-12 on the back rising inventory levels in the US and dismal economic data coming out of the EU. Average Arab Light prices during Apr-12 were 3% lower on a MoM basis to USD 120.3/bbl. We expect prices to further decline during the remainder of FY12 as Saudi Arabia has recently indicated that it considers USD 100/bbl an ‘appropriate’ price for oil. So far, May-12’s average Arab Light prices are lower by 6%. Although this may come as a respite for the time being (as current account deficit has held up firm in FY12 owing to deteriorating trade deficit), we estimate that the pace of falling international prices effect would have a positive impact on the imports. However this impact would be diluted somewhat as the country’s exports may also suffer further contraction due to falling commodity prices coupled with economic slowdown in western economies.