FY23 CAD will likely present a pleasant prospect

KARACHI: Pakistan’s current account deficit is expected to be lower at $8.7 billion or 2.3% of GDP during current fiscal year (FY23) as compared to CAD of $17.4 billion or 4.5% of GDP in FY22, experts said.

“We estimate CAD of $8.7 billion (2.3% of GDP) in FY23 lower than SBP latest estimate of $10 billion and other players estimate of $11-15 billion,” a research report of Topline Securities said.

Due to government’s timely measures and market driven exchange rate, imports are falling at higher than expected rate, he said. “We expect FY23 total imports as per SBP reporting to decline by 13% to $62 billion as compared to $72 billion in FY22) due to tighter monetary and fiscal policy and lower international commodity prices,” it added.

The report said funding gap for FY23 is now estimated at $32.2 billion including debt repayment of $23.5 billion which is much lower than earlier estimates due to lower than expected current account. Resultantly, roll over risk will reduce especially for $1 billion of Eurobond and $4 billion of commercial loan in FY23 as reliance on commercial borrowing may not be needed due to lower than expected current account deficit.

With almost all the conditions of the IMF met, the Fund’s $1.2 billion tranche after a delay of few months will be released after board approval which is expected by August end. Staff level agreement was reached on July 13 and Pakistan met prior actions pertaining to energy tariff adjustments, increase in taxes and Petroleum Levy. This IMF endorsement will also help Pakistan in getting other inflows and rolling over bilateral and multilateral loans.

C/A posts over $17bn deficit in FY22

“Assuming oil and other key import prices to remain in check, we expect rupee to strengthen after falling by Rs48 or 21% in 2022 to date against US$. We expect rupee to range between Rs 200-240 during FY23 where on average basis it is likely to settle at around Rs 220 versus average of Rs 178 in FY22,” the report said.

“We anticipate inflation to remain close to SBP revised estimate of 18-20% in FY23. However, we expect YoY CPI to start falling from Sep 2022 as inflation will likely peak in Aug 2022. Due to this, we think interest rates are near its peak where we see policy rate coming down from 15% to 13.5% by June-23 and 9.5% by June-24.”

The report said that political noise in Pakistan is likely to continue due to recent change in government. “However, we expect government to complete its tenure and elections will be held in 2023 which will be key for economic stability.”

“We believe that the stock market has already adjusted for tough measures taken by government and SBP. The market is currently trading at all-time low PE of 3.3x/4.7x (excluding circular debt companies). With signs of economic stability, we expect index to reach 52,000 by June 2023, a potential upside of 25%.”

Copyright Business Recorder, 2022