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The current account deficit (CAD) at $1.9 billion in November surprised many. Hawks may get sidelined. Based on PBS goods trade deficit of $5 billion, people were expecting CAD to be around $3 billion. But SBP’s goods trade deficit stood at $3.7 billion. For 5MFY22, the difference of trade deficit between PBS ($20.6bn) and SBP ($17.6bn) is $3 billion and the difference basically comes from goods imports for Jul-Nov of $3.1 billion. Part of the difference is normal as whenever imports grow, the PBS and SBP datasets register a lag. This will normalize over the coming months with the deficit reported by PBS coming down. However, it appears that PBS made a blunder in reporting of petroleum imports which is partially widening the gap.

Analysts and economists were shocked to see PBS imports number at $7.9 billion. It was hard to digest. Markets took pounding with money markets rates going up, currency depreciating, and stocks moving in red. The detailed data (PBS) baffled sane analysts by seeing Pakistan imported 2.8 million tons (MT) of petroleum products and crude in Nov which is simply not possible. OCAC (Oil Companies Advisory Council) data which feeds PBS data showed imports of 1.8 million tons. OCAC number seems to be correct based on country’s annual imports which stood at 15 MT in 2020 and 18.5 MT in 2019.

The question is what made PBS report higher imports that translated to unexplained import bill of $500 million in the PBS number. Federal government authorities owe the market an explanation.

The other element that markets are confusing is vaccine imports – reported under the sub-head of medicinal products within agriculture and other chemicals group. In PBS, the number is $688 million (5MFY22: $2.1bn) versus SBP that report this at $75 million (5MFY22: $330mn). The difference for 5MFY22 is $1.8 billion and that number is perhaps parked in SBP’s data of other imports which stood at $2.4 billion (versus $792 mn same period last year).

The reporting here is in different heads. The vaccine is a combination of grants and loans and SBP reported it under other items of imports. The counter accounting entry of grants is either in balance of secondary income (within current account) or capital accounts (below the line). And the portion of debt (lion’s share) is in government debt in the financial account of balance of payment.

There are numerous other items where marginal imports in PBS data are higher than SBP, and history suggests these will balance out in the months to come – especially in June and December where the books are balanced. SBP data is based on cash (payment basis) while PBS is based on actual imports. There is usually a lag and that balances out. The message for readers is to not read too much into these numbers.

The good thing is that the current account is not as bad as many might believe. Nonetheless, it stood at a deficit of $7.1 billion (annualized GDP of 5.1%) in Jul-Nov against a surplus of $1.9 billion in the same period last year. Imports stood at $29.9 billion in 5MFY21 and $6.4 billion in November 21.

The increase in imports has been across the board. Food imports are up by 35 percent to $3.4 billion – within which palm oil imports are up by 62 percent to $1.4 billion. Here based on PBS numbers, the quantity is almost unchanged and the price increase is 74 percent. With palm oil prices coming down, this bill may normalize in the second half.

Machinery imports (per SBP) are up 27 percent to $3.8 billion. Here the PBS number is higher – up 24 percent to $4.8 billion. The difference of $990 million perhaps will normalize in months to come as the payment cycle varies from actual imports. The highest difference is in power machinery - $530 million in 5MFY22 and part of the machinery reported as power in PBS is treated as textile in SBP; as in textile, SBP reports $185 million higher imports. This is probably due to textile players importing power machinery for their captive use.

Transport imports stood at $288 million (per SBP) in Nov21 – down by 10 percent from Oct21. In 5MFY22, the toll is up 112 percent to $1.6 billion. The increase is not out of the blue. In fact, last year’s numbers were too low. The Finance Minister’s rhetoric of CBU car imports ballooning the import bill may not be factual as the number stood at a mere $7 million (PBS: $26 million) in November. The CKD car imports stood at $155 million in Nov and $672 million in Jul-Nov. There is also a high growth in both CBUs and CKDs of heavy vehicles.

The elephant in the room is petroleum imports- up 106 percent to $7.1 billion (SBP) and 112 percent to $8.4 billion (PBS). This is for the cumulative Jul-Nov period. For Nov, SBP data stood at $1.6 billion – up 8 percent from Oct. Here PBS is clearly overstating the volumes. The monthly number is up 36 percent to $2.2 billion. PBS showed quantitative imports of oil at 2.8 MT of petroleum products crude – up 42 percent from October.

The LNG imports stood at $1.3 billion on SBP data for Jul-Nov as compared to $1.9 billion on PBS data. Similarly, the difference of PBS and SBP in LPG imports stood at $206 million for Jul-Nov. The difference of $840 million will be adjusted in months to come.

The story of other groups is similar where 40-50 percent year on year growth is observed in metal, agriculture and other chemicals and textile group. Here the anomaly of medicinal products is explained above, and rest of the increase is due to both higher prices and demand.

Exports are much less dramatic. The growth is promising – up 29 percent to $12.3 billion (SBP) and 27 percent to $12.3 billion on PBS data in 5MFY22. Food exports are up 21 percent to $1.9 billion and other manufacturing is up 12 percent. The star performer is textile where exports are up 34 percent to $7.2 billion in July-Nov.

There is nothing new in the services imports and exports. The impact of travel opening up is slowly increasing the services import number, and that has a bearing on the growth of remittances and other current transfer where there are dents on monthly numbers.

The overall balance of payment situation is likely to improve from now onwards. The imports peaked in Nov (and some lag impact may be visible in Dec). Once that is ironed out, given oil prices do not go crazy, current account deficit will taper off in the second half.

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Dec 22, 2021 07:24pm
SALAAM AND HOPES YOU ARE WELL HONOURABLE
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