The current account almost hung in balance in Feb21 – with a meager deficit of $50 million. The eight month (Jul-Feb) current account number is well in surplus -at $881 million (0.5% of GDP) versus a deficit of $2.7 billion (1.5% of GDP) in the same period last year. With uptick in economic activities and high oil prices, import bill could be higher in months to come. Nonetheless, if, remittances bonanza continues, the deficit monthly run rate will be manageable– $200-$500 million.
It is pertinent to note that exceptional remittances and other better flows due to less travel is not the only abnormal story in the current account. There are elements in imports which were not present in yesteryears – high agriculture commodities imports (wheat, sugar and cotton) are soaring import bill to partially nullify the goodies of less travel.
The incremental flows from remittances and other transfer are standing at $5.2 billion in Jul-Feb and add the benefit of low service imports (due to less travel), the improvement in current account is at $6.1 billion. Import of three agriculture commodities’ incremental number is $1.5 billion (PBS data), eating one fourth of the benefit of low travel.
Then the high commodity prices due to supply chain disruption (an extension of less travel) is putting pressure on imports – such as palm oil imports (PBS data) value is up by 34 percent while volumes are up by 7 percent in 8MFY21. The story of supply chain disruption is reflecting (and soon to be reflected) in many other commodities – oil, coal, specialized chemical, steel etc. Less travel was a blessing in terms of low oil and other commodity prices in early days of COVID, and now the impact is the other way round.
Apart from these COVID related volatility and exceptions, there are steps towards enhancing documentation taken in a few sectors where import bill is increasing as higher flows are now from official channels. One example is mobile phones – official import bill was $700-800 million per annum during FY17-19. After implementation of DIRBS in 2019, the bill increased to $1.4 billion in FY20 and in 8MFY21, the number is at $1.3 billion – likely to cross $2 billion in full year. In FY20, there were past smuggled inventories shown by importers to lower the reported bill. Now all phones are imported from official channels.
Then the implementation of FATF related laws and regulations are reducing other smuggled goods. Overall 8MFY21, imports are up by 9 percent to $32.1 billion. Based on PBS data, food group imports are up by 50 percent for the reasons cited above – barring sugar and wheat, the growth is at 21 percent. In machinery imports, barring mobile phone, the number is down by 7 percent.
Transport related imports is growing at a fast pace – up by 56 percent to $1.7 billion in Jul-Feb. It’s the new cars’ launching season – CBU cars imports are up by 157 percent to $140 million and CKD cars imports bill is up by 92 percent to $577 million in Jul-Feb. Combine these two, the bill is 55 percent of what the country is paying on mobile phones import. This shows how big the mobile phone assembling could be. It has just started and some in government think that this industry could well cross automobile in a few years.
The biggest import group is transport - down by 22 percent to $6.4 billion in Jul-Feb. Both petroleum crude and products volumes are up by 14 percent and 28 percent respectively while the values are down by 25 percent and 21 percent, respectively. RLNG import is down by 27 percent. The Brent oil prices on average in Jul-Feb are down by 23 percent as compared to the same period last year. Now the prices have moved up, this will put pressure on imports. The good news is that one of the nuclear power plants is operational – soon it will reduce 200 mmcfd import requirement of RLNG and next year after the second nuclear plant coming online, another similar cut in RLNG import will take place.
Textile imports are picking too – increased by 47 percent to $2.4 billion. These imports are mainly for re-exporting purposes. Agriculture and other chemicals group is the third biggest import category – up by 8 percent to $5.4 billion and metal group is up by 12 percent to $3.2 billion.
In case of exports, the monthly number is now consistently above $2 billion. The growth in textile group is at 7 percent – most of the low value-added sector are showing decline in exports while the high value-added sectors are showing double digits growth.
The trade deficit in goods worsened by 22 percent to $16.1 billion. The story of better services exports and less service import continues. The trade deficit in services is down by 42 percent to $1.3 billion – overall trade deficit in goods and services is standing at $17.4 billion in Jul-Feb – up by 13 percent.
The glory in the current account is none other than balance on secondary income – improved by 30 percent to $21.6 billion. Of course, remittances are the top performer – up 24 percent to $18.7 billion in 8MFY21 ($2.3 bn a month). Then the other current transfers are growing at exceptional pace – up by 112 percent to $2.8 billion – more people and organizations are sending charity and all.
The bottom line is that better story of current account continues, and as long as secondary income account is doing well, there is space to spur growth momentum led by higher imports.
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