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Tuesday, December 12th, 2017

AKD Quotidian about — FY13 CAD review and outlook

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by July 19, 2013 Brokerage

Karachi, July 19, 2013 (PPI-OT): The Current Account balance for Jun’13 has registered a deficit of US$1 63mn, down a sharp 69%MoM, bringing the full-year FY13 deficit to US$2.30bn vs. a deficit of US$4.66bn in FY12, an improvement of 51%YoY.

According to AKD Securities the latter was underpinned by i) receipt of Coalition Support Funds (US$1 .8bn), ii) 4%YoY reduction in the trade deficit, iii) 7%YoY increase in remittances and iv) 22%YoY reduction in interest payments.

The FY13 CAD of -0.9% of GDP is very manageable in itself but for risks stemming from repayments to the IMF. In this regard, the import cover has dropped to 2.7 months (1.4 months on SBP reserves), coinciding with recent pressure on the PkR (FYTD depreciation vs. the US$: 1.8%). With a few months still to go before commencement of the IMF EFF program, import cover is likely to dwindle further, thereby keeping the currency under pressure in the near-term.

This may lead to EandP, Electricity and export-oriented sectors performing well over the next few months. Over the medium-term, anticipated macroeconomic stability and steps to resolve the energy crisis may support the market’s continued re-rating (forward PIE has expanded by 33%CYTD to 9.5x at present).

FY13 CAD down 51%YoY: After posting a high deficit of US$466bn (2% of GDP) in FY12, the Current Account deficit contracted by 51%YoY to US$2.29bn (0.9% of GDP) in FY13.

This was underpinned by i) receipt of Coalition Support Funds (US$1 .8bn), ii) 4%YoY reduction in the trade deficit, iii) 7%YoY increase in remittances and iv) 22%YoY reduction in interest payments.

Drilling down, FY13 exports remained flat at US$24.7bn (higher textile exports volumes counted by lower AUPS) while full-year imports clocked in at US$39.8bn, lower by 2%YoY. This trade gap of -US$ 1bn was almost completely financed by FY13 remittances of US$13bn.

Outlook on CA: Heading into FY14, the outlook for the Current Account remains manageable provided international oil prices remain stable. On the external front, AKD Securities expects disbursements under the IMF EFF program to cancel the previous SBA program’s repayments while anticipated disbursements by other multilaterals (-US$5bn) will build up foreign exchange reserves cover going forward.

Over the medium-term, anticipated macroeconomic stability nay lead to a revival in FDI as well where FY13 FDI of US$1.447bn was up 76%YoY but still much lower than peak levels achieved in the last decade.

Investment perspective: The import cover has dropped to 2.7 months (1.4 months on SBP reserves), coinciding with recent pressure on the PkR (FYTD depreciation vs. the US$: 1.8%). In this regard, with the import cover and consequently the exchange rate nay remain under pressure over the next few months, the EandP, Electricity and export-oriented sectors may perform well over the immediate term.

Going forward, imminent re-entry into an IMF program, which should lead to much needed macroeconomic discipline and comfort on the external front may support the market’s continued re-rating (forward PIE has expanded by 33%CYTD to 9.5x at present).

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