AIRLINK 62.48 Increased By ▲ 2.05 (3.39%)
BOP 5.36 Increased By ▲ 0.01 (0.19%)
CNERGY 4.58 Decreased By ▼ -0.02 (-0.43%)
DFML 15.50 Increased By ▲ 0.66 (4.45%)
DGKC 66.40 Increased By ▲ 1.60 (2.47%)
FCCL 17.59 Increased By ▲ 0.73 (4.33%)
FFBL 27.70 Increased By ▲ 2.95 (11.92%)
FFL 9.27 Increased By ▲ 0.21 (2.32%)
GGL 10.06 Increased By ▲ 0.10 (1%)
HBL 105.70 Increased By ▲ 1.49 (1.43%)
HUBC 122.30 Increased By ▲ 4.78 (4.07%)
HUMNL 6.60 Increased By ▲ 0.06 (0.92%)
KEL 4.50 Decreased By ▼ -0.05 (-1.1%)
KOSM 4.48 Decreased By ▼ -0.09 (-1.97%)
MLCF 36.20 Increased By ▲ 0.79 (2.23%)
OGDC 122.92 Increased By ▲ 0.53 (0.43%)
PAEL 23.00 Increased By ▲ 1.09 (4.97%)
PIAA 29.34 Increased By ▲ 2.05 (7.51%)
PIBTL 5.80 Decreased By ▼ -0.14 (-2.36%)
PPL 107.50 Increased By ▲ 0.13 (0.12%)
PRL 27.25 Increased By ▲ 0.74 (2.79%)
PTC 18.07 Increased By ▲ 1.97 (12.24%)
SEARL 53.00 Decreased By ▼ -0.63 (-1.17%)
SNGP 63.21 Increased By ▲ 2.01 (3.28%)
SSGC 10.80 Increased By ▲ 0.05 (0.47%)
TELE 9.20 Increased By ▲ 0.71 (8.36%)
TPLP 11.44 Increased By ▲ 0.86 (8.13%)
TRG 70.86 Increased By ▲ 0.95 (1.36%)
UNITY 23.62 Increased By ▲ 0.11 (0.47%)
WTL 1.28 No Change ▼ 0.00 (0%)
BR100 6,944 Increased By 65.8 (0.96%)
BR30 22,827 Increased By 258.6 (1.15%)
KSE100 67,142 Increased By 594.3 (0.89%)
KSE30 22,090 Increased By 175.1 (0.8%)

Even the current account is in Red Zone. No good news is coming to the ruling party. On the economic front, foreign reserves are marginally down in the last 15 days amidst correction in the currency market. The IMF is making fuss on a mere four percent increase in power tariffs and is not completing the fourth review. Life is not easy for Dar these days in Islamabad as he is losing grip on economic numbers, especially the currency which has crossed the loved band of Rs98-99.
Current account deficit soared to $454 million in July, which translates into an annual gap of 1.9 percent of GDP as compared to 1.2 and 1.1 percent of GDP in the last two years, respectively. It’s not fair to extrapolate one month’s performance to evaluate how flows could be in remaining eleven months, but it’s not a good omen.
The trade gap is widening and even the robust growth in the inward remittances is not enough to bridge it. Exports of goods stood at $1.9 billion, which is nine percent short of average monthly export of last year and 13 percent lower than the corresponding month of last year.
The export proceeds in August can be worse as large numbers of containers to ship goods were confiscated for more than a week time. Anyhow, that may well be a one-off event—government should be deliberating on the impact of rupee appreciation on the exports and should also be evaluating the benefit, if any, coming from GSP plus.
On the flip, imports jumped by nine percent on the average monthly import of last year. Details of imports for July are not public yet; FY14 numbers have shown growth in imports for machinery, especially in textile and power sectors. That is promising as this will improve the stock of investment and can translate into higher growth through better power supply and higher textile exports.
Oil prices at $106.8 in July versus $109.3 in FY14 suggest that oil imports may be curtailed in July. Let’s hope high imports in July are due to high machinery imports and this may eventually translate into building exports. But, there has to be policies to discourage luxury imports till the time exports base is expanded. Higher import duties have to be imposed on non-essential goods.
However, the State Bank has been advocating to the bankers that the widening of trade deficit is not as worrisome as the robust growth in remittance is covering the gap. That’s true as remittances are fast converging to the trade deficit as the former was at $15.8 billion and the gap was $695 million in FY14 vis-à-vis $1,433 million in the previous year.
There is another problem of balance in trade services, which has been widened because of lower reimbursement in the CSF. With the US exiting from the Afghanistan, chances of any more money coming in on that front are thin and this will surely dent the current account balance.
Hence, in order to be within SBP’s projection of CAD of $2.5 billion (0.9% of GDP) in FY15, trade deficit ought to be narrowed. Seemingly, the target is a little too stiff to meet and a risk to further deterioration is slippage in international oil prices owing to crisis in the Middle East.
With not a rosy picture on the CA front, there is a dire need for continuation of higher financial and capital inflows. The civil disobedience launched by the PTI will do no good for the country as foreign lenders, including the IMF, would be reluctant to extend loans as long as Imran and Nawaz are at loggerhead. Foreign direct investment is showing no promise either as it was abysmally low at $24 million in July.
Portfolio investment was one of the saviors last year with $2.7 billion flowing in as compared to a mere $125 million in FY13. Two billion dollars from the Euro Bond issuance and $300 million from UBL secondary offering are the highlights of it. Political government’s continuity is imperative for building confidence and further issuance of bonds and privatization deals. However, for the last few weeks, Chairman Privatization Commission has been busy in firefighting. No wonder, the work on the OGDC’s GDR and other deals is pending.
All this, along with political chaos, can explain the movement in the currency in last week. There are rumours that exporters are holding back proceeds and importers are having excessive forward covers, although there are no signs of short supply of dollars; players are expecting rupee to slide further.
Easy come easy go. The way self-fulfilling prophecy of rupee appreciation worked in March as it came down to Rs98 per USD and remained around 98-99 levels since then; its fall could be similar. In the last few months, ministry of finance with the help of State Bank was closely scrutinizing banking treasuries and had assured stability in currency market. Now, with Dar busy in political firefighting, bankers pounced upon the opportunity to let the currency to drift a bit. The question is that where would be the new equilibrium; well its answer can be dug from the happenings in the Red Zone.

Comments

Comments are closed.