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Although the current account deficit was significantly higher in November ($475 million) over the previous month ($223 million), the cumulative tally for 1QFY15 is still below the average monthly slippage of $549 million. With Novembers numbers in, the 5MFY15 current account deficit now stands at $2.35 billion; which is 9 percent higher than what it was in the corresponding period last year.
The good omen is that falling commodity prices are lowering the import bill more than the dip in proceeds from exports, hence taming the goods trade deficit to $1.15 billion in November against the first four months monthly average of $1.87 billion. Exports of goods fell to $1.89 billion in November against the Jul-Oct average of $2.01 billion which is depicting the toll of global slowdown on exports demand from Pakistan, coupled with impact of fall in cotton and rice prices.
GSP Plus status has come to the rescue and is offsetting losses from low value added exports - knitwear, bed wear and readymade garments combined monthly average exports increased by 11 percent in FY15 to date as compared to that of FY14 and that would not have been possible without the advantage of exports to the EU.
On the other hand, falling commodity prices and depressed demand from China have adversely affected the cotton yarn and cotton cloth exports which took the average monthly exports down by nine percent collectively in these two categories. Similarly, economic slowdown and higher global supply have led rice exports to drop by 22 percent in Jul-Oct monthly average against that of FY14. The July-Nov 14 exports proceeds are down by 2 percent year-on-year.
The fall in oil prices is more pronounced than other commodities and that is why the import bill of November thinned to $3 billion against the first four months average of $3.87 billion. The dip against the Octobers number alone is $486 million; with at least half of the fall attributable to lower oil prices.
The way global crude prices are heading, the overall petroleum group imports are expected to drop by 25-30 percent in FY15. Lower prices generally spur demand and a pickup in consumer demand for petroleum, diesel and furnace oil is already imminent. This rise is likely to lend positive impact on GDP growth.
On the whole, the improvement in trade balance during November (as against October) is more than offset by lower current transfers while rest of the items remained virtually same. Workers remittances were almost at the same level of $1.3 billion while current transfers stood at a mere $179 million, as against $539 million in October. But the latter might be of one time high in October as it is usually donor money (zakat and NGO) coming into the country - it was $4 billion in FY14 (monthly average: $333mn) and the average is same for Jul-Nov ($335mn) period.
In a nutshell, the CAD at 2 percent of GDP ($1.9bn) in 5MFY15 is likely to get better in the remaining seven months of the fiscal, as lower oil prices will ease the pressure and one may assume it to come around one percent of GDP in FY15 as against 1.3 percent in FY14. And if oil prices persist at similar levels, CAD may be in surplus during FY16.
That is the story of current account. The capital and financial account flows have lost steam ever since the start of this year and November was no exception. This is in sharp contrast to FY14 in which foreign flows poured into the country after a lull.
The SBP reserves were up by from $6 billion (June 13) to peak at $9.2 billion in July 14 and dropped till November end. It started to pick up again in December with an inflow of $1 billion coming from Sukkuk issue in the international market and had reached $9.3 billion by the second week of December. Two tranches of IMF ($1.1bn) are also expected in the last week of December which will take the SBP reserves to over $10 billion and the countrys overall foreign exchange reserves over $15 billion by the end of the calendar year.


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Key items: Balance of Payments
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$ (mn) 5MFY15 5MFY14 chg
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Current account balance (2,345) (2,145) 9%
Balance on trade in goods (8,610) (7,376) 17%
Exports 9,942 10,140 -2%
Imports 18,552 17,516 6%
Balance on trade in services (8,610) (7,376) 17%
Exports 2,376 2,003 19%
Imports 3,372 3,311 2%
Balance on primary income (1,872) (1,679) 11%
Workers remittances 7,399 6,407 15%
Other current transfers 1,679 1,742 -4%
Capial account balance 89 73 22%
Financial account balance (1,426) (533) 168%
Net FDI (374) (284) 32%
Portfolio investments (237) (86) 176%
Overall balance of payments (901) (2,061) -56%
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Source: SBP

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