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Morning Call about Trend reversal – not exactly – Arif Habib Limited

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by January 19, 2012 Brokerage

Karachi: Current account posts a surplus of USD 160mn for Dec-11

The country’s overall current account balance (C/A) for the month of Dec-11 turned positive to USD 160mn, after posting a continual deficit during the 5MFY12 averaging USD ~450mn/month, translating into a 1HFY12 C/A deficit of USD ~2.2bn compared to a surplus of USD 8mn in the corresponding period last year.

According to Arif Habib Limited, the improvement in C/A is mainly attributed to contraction in trade deficit and high remittances received during the month. The overall balance of payment position posted a deficit of USD~76mn for Dec-11, compared to USD ~322mn in Nov-11, owing to slowdown in foreign inflows.

Slowdown in monthly import bill limits the trade deficit widening

The monthly import bill for Dec-11 slowdown to USD 3.1bn, showing a decline of 2% MoM. This limited further widening in trade deficit, which for the period 1HFY12 was up by 32% to USD 7.6bn.

Higher export earnings for the month

During the month of Dec-11 the overall exports registered a 7% MoM rise to the tune of USD ~2bn bringing the total 1HFY12 exports at USD 12bn (+~9%YoY).


Trade balance USD (million)
 5MFY12 Dec-11Nov-11MoM%1HFY121HFY11YoY%
Exports10,067 2,0571,9187%12,12411,112 9%
Imports16,661  3,082 3,157-2% 19,74316,882 17%
Deficit -6,594-1,025 -1,239  -17%  -7,619  -5,77032%


Worker’s remittances continue to post strong growth

The worker’s remittances for the period 1HFY12; jumped by 20% YoY to USD 6.3bn, of which a USD 1.1bn was remitted in the month of Dec-11 alone, (+17% MoM).


Worker’s Remittances USD (million)
 5MFY12 Dec-11Nov-11MoM%1HFY121HFY11  YoY%
Remittances5,2401,085 925  17% 6,325 5,291 20%


All eyes on financial accounts

The financial account balance remained shallow owing to falling foreign inflows. The Foreign Direct (FDI) and portfolio Investments (PI) declined to USD 532mn and USD 97mn, respectively, during the period 1HFY12. However a net inflow of USD 112mn under FDI was recorded for the month of Dec-11, against USD 96mn in Nov-11 (+17%MoM).


Financial Account Balance USD (million)
 5MFY12Dec-11Nov-11 MoM% 1HFY12  1HFY11 YoY%
FA379-282444 n.m97979  -90%
FDI42011296  17%532840  -37%
Invsts -114  -29  -13 123% -143222 n.m
Equity-113-29  -13  -142233
Debt-10 0 -1-11


Current account is likely to post a USD 3.3bn deficit by FY12

Given the small quantum of C/A surplus during the month, it would not surprise us when the revise figures – due next month start – would point towards a total different set of a story. Arif Habib Limited’s contention mainly attributes the unusual import bill payments during the month and the rising mismatch between the FBS trade figures and that reported by SBP. Hence Arif Habib Limited continues to believe that country’s C/A balance will head back into deficit territory by the FY12-end. Arif Habib Limited’s estimates suggest C/A deficit position for FY12 at USD 3.3bn or 1.6% of the GDP.


Balance of Payment USD (million)
  5MFY12 Dec-11 Nov-11MoM% 1HFY121HFY11YoY%
C/A-2,314160-688n.m-2,154 8n.m
C/a (ex-OT)-2,490 87 -735 n.m -2,403 -293 720%
BoP 420  -76-322 -76% -1,792975 n.m


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