Current account in worrying territory
The current account deficit for Jan 2017 clocked in at $1,189m versus a deficit of $590m in the same period last year showing a 102pc rise on YoY basis. This takes the cumulative 7MFY17 deficit to $4.7bn compared to $2.5bn in SPLY, up by a similar 90pc.
As exports remained flat in 7MFY17, imports rose by 9pc resulting in a 21pc hike in trade deficit. Absence of CSF inflow resulted in a 29pc jump in services deficit, while drop in income deficit helped contain the deficit somewhat.
Overall the government has relied on multilateral loans and sovereign bonds to fill the current account deficit as FDI has failed to pick up substantially (barring Engro Foods deal) in FY17TD.
As a result, the SBP reserves are down to $17.0bn (as of 10 Feb 2017) compared to FY16 end level of $18.1bn and FY17 peak of $18.9bn seen at Oct-16 end. Based on latest three months average current account numbers, the overall FY17 deficit has the potential to reach above $9.0bn compared to $3.3bn witnessed in FY16.
Such a flat rupee is unsustainable in our view unless the government is able to get a funding line from China or the proposed foreign amnesty scheme gets a resounding response.
Trade deficit rises, remittance dip
After witnessing a drop of 4pc/9pc YoY in FY15/FY16, exports in the 7MFY17 again witnessed a drop 1pc, while monthly numbers for Jan 2017 showed a MoM drop of 4pc.
Textile exports during 7MFY17 have dropped by 5pc, along with other major heads which saw a similar drop. Nonetheless some respite in export numbers is likely, following the incentives given in the recently announced export package.
Overall the government has relied on multilateral loans and sovereign bonds to fill the current account deficit as FDI has failed to pick up substantially
Despite subdued oil prices, imports during 7MFY17 have risen by 9pc, with the highest growth of 142pc coming from transport group. Growth in machinery imports stood at 11pc while food imports also rose by 14pc.
Going forward, impact of higher oil prices and rise in the CPEC related imports will likely result in ascent in imports.
Remittance numbers during 7MFY17 has dropped by 2pc YoY, with major drop being witnessed from UK, US and Saudi Arabia of 11pc, 9pc and 6pc, respectively.
Due to polarisation in the US, post Trump inauguration, some rise in remittance from US is likely.
Though the CPEC inflow will be witnessed in the financial account, a similar quantum of imports will largely neutralise the forex reserve addition impact. The SBP reserves are down to $17.0bn (as of 10 Feb 2017) compared to FY16 end level of $18.1bn and FY17 peak of $18.9bn seen at Oct 2016 end.
—The writer is an analyst at Alfalah Securities
Published in Dawn, Economic & Business, February 27th, 2017