The current account (C/A) deficit thinned to $1.2 billion in July 22 – down by 45 percent from the previous month. The number is likely to come down further in August, and perhaps there could be a month or two of current account surplus. That is a sign of relief. However, it is not coming without a cost. The reason for lower current account deficit to be in the next few months are the administrative measures taken in terms of opening of L/Cs. These are resulting in lower import bill. However, the decline is also visible in exports – due to buying markets slowdown and expensive and interrupted energy provisioning at home, and in remittances – due to slowdown in senders’ economies and opening of travel. The fall in earning avenues is limiting the gains of imports in terms of current account deficit reduction.
The imports stood at $5.4 billion in July – down by 23 from the previous month imports of $7.0 billion. The number is still higher than $4.99 billion reported by PBS. Usually, the PBS number is higher as it includes the freight cost as well. The reason for higher SBP number is that its imports are computed on payment basis and there is usually a lag of 30-60 days in payment – especially in the case of oil imports.
The petroleum group imports stood at $2.4 billion (down by 16%) on SBP’s payment basis while the number was mere $1.4 billion (40% down) on PBS – actual basis. Since some payments of June imports were made in July, the SBP number is higher. And that is one reason for higher currency depreciation in July. Since the PBS imports were low in July, the impact on SBP (and current account) would reflect in August and September.
The food imports (SBP) stood at $618 million – its up by 74 percent from the abnormally low number of last months; but it is in line with the last twelve-month average import of $667 million. SBP is managing imports payments – In June palm oil (at $94 mn) was in check which came back to normal range - $255 million in July. There is some decline in tea imports in the last two months – averaged at $37 million versus the previous ten months average of $49 million.
The machinery imports are down by 34 percent to $504 million. The decline is primarily due to low mobile phone imports – which stood at $16 million versus last twelve-month average of $145 million. This massive decline is attributed to administrative control – L/Cs are heavily restricted in this sector. The decline is visible in all other kind of machineries as well, as the imports of all machineries are controlled.
The story of transport sector is no different- down by 36 percent to $121 million. The fall is 60 percent from the last twelve-month average. CBU cars were banned, and CKD quota was reduced to half. There should some element of demand destruction due high interest rates, slowing down economy and rising car prices. However, the impact to be visible once the imports are normalized.
The story of many other import group – textile, agri and chemicals and metals are not much different. Here combination of demand and administrative measures have resulted in the fall of 15 percent to 22 percent.
Exports of good stood at $2.3 billion – down by 27 percent MoM. Food exports are down by 34 percent to $386 million – rice down by 42 percent. And the double-digit decline is in every food item. One of the reasons for all this is thatexporters had started holding payments back as much as they can in anticipation of gaining on the sharp currency depreciation in the last month. And there could be some impact of demand as well. Let’s see how much of food exports will normalize in the coming month. With floods in the country, overall food production and supply chain is adversely affected and that would have a toll on food exports.
The story of textile exports is no different-down by 20 percent on MoM to $1.4 billion. It’s down by 7 percent from the last twelve months average. Here the buyers’ market is slowing down. Their inventories are piling, and orders are less. Then the energy supply is challenging in Pakistan. Imported gas is at exuberant prices. It’s hard for government to keep up with regionally competitive prices.
Overall trade deficit of goods improved by 21 percent to $3.1 billion. Services balance is improved by 60 percent over the last month, as imports of services payments remained low. There is a huge backlog of services and repatriation payments. Travel service is on top. Overall travel remains high but not much have repatriated yet. That has increased the air ticket prices as airlines have discontinued discounts. There were issues in shipping companies’ payment do. Sooner or later these to reflect in numbers.
Remittances slightly tapered off too. It’s hard for it to keep momentum with increase in foreign travel. Then the sums used to come for real estate investment may wait. Overall inflows to remain slow till the global economies to not recover. The only way to control current account is to curb demand.
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