By: Saad Khan, Economist, Arif Habib Ltd.
Imports drop to lowest during the 5MFY12
The latest balance of payments data for the period 5MFY12 pointed to a current account (c/a) deficit of USD2.1 billion, against USD 478mn corresponding period last year. However interestingly the break-up of current pattern of deficits reveals that it is not based on rising import bill, which for the month stood at USD 2.99bn, down by ~7% MoM. While not so encouragingly the overall energy based import still showed a handsome growth of +8%MoM (+2% YoY). On the other hand the capital-based goods (machinery) import rose to USD 320m, +21% MoM, which in our view seems encouraging.
Revising our FY12 c/a deficit forecast to USD ~3.3bn
We expect a sharp downward adjustment in the c/a deficit in FY12. Our revise estimate suggests c/a deficit likely to reach USD 3.3bn by FY12-end or 1.4% of total GDP. This in our view is likely to come on the back of sluggish export growth of ~5%YoY to USD 26bn, due to lower commodity prices but also due to the noticeable slowdown in energy constraints. While our import projections remain on the higher side at USD ~41.1bn (+~15% YoY) owing high energy based consumption. Incorporating these changes we estimate the trade deficit likely to hover around USD ~14.7bn against USD 10.5bn in FY11.
Widening deficit putting pressure on PKR
Responding to widening c/a deficit the PKR depreciated sharply after hitting a 112-day low of PKR 89.635/USD in interbank, on Dec-15 2011 followed by a slight rebound to 89.565 on Dec-16 2011. The rupee has seen more volatility since the start of Dec’11, primarily owing to liquidity shortage and secondly as concerns over Pak-US ties intensified. Over the period the PKR has shredded almost 4.2% FY12TD while on annual comparison this translates into 9.5% depreciation.
PKR likely to reach 91.6/USD by Jun’12…
In coming weeks we expect PKR should broadly remain stable after a recent boost in FX reserves of USD 10mn, allowing the total reserves to reach its USD ~16.69bn mark. However we maintain our depreciation bias over the remaining period to FY12-end. We think by Jun’12 the PKR is likely to touch 91.63/USD bringing in FY12 average at PKR88.7/USD (~4%YoY). We expect the PKR to face sharp depreciation in the 2HFY12, averaging 3% primarily owing to debt re-payments.