As expected, the current account slipped again in May 2022 to stand at $1.4 billion. While the 11MFY22 deficit came at $15.2 billion as against the deficit of mere $1.2 billion in the same period last year. Pickup in economic growth and commodities super cycle along with Covid vaccine imports have resulted in the higher deficit in FY22. The full year number would be around $17 billion.
The deficit in May at $1.4 billion is almost double of the average monthly deficit in the previous three months of $717 million. However, still the number is less than the market expectations and there are some anomalies in the numbers which suggests that the June CAD could be even higher. The higher deficit in May is attributed to both lower exports and home remittances numbers – down by 21 percent and 25 percent, respectively as compared to the numbers in April 2022.
The surprising element is lower imports – at $5.7 billion which is down by 6 percent on monthly basis. The unexplained part is that the imports computed by SBP (on payment basis) is 16 percent or $1.1 billion less than the imports recorded by PBS (on actual imports) in May 2022. Some of these imports might be routing via- non-banks by using deferred oil facility. The non-banks imports stood at $393 million and that is what SBP is perhaps referring to in kind fully financed imports in its tweet.
The difference is primarily in the petroleum group where the PBS recorded imports of $2.6 billion while the SBP’s recording is at $1.4 billion. The difference of $1.26 billion is too high to ignore. PBS numbers are closer to reality while SBP is showing much modest import. There might be case of delay in payments of crude, petroleum products and LNG imports, and these payments would reflect in June numbers. However, there might be better exports and remittances numbers to dilute the deficit.
The goods imports excluding petroleum group is almost the same for both PBS and SBP numbers which suggest that there is a slight decline in the last two months. Demand is surely tapering; but the impact on imports is going to be visible in a few months. However, high commodity prices would cancel out the decline.
Food imports stood at $738 million in May as compared to $683 million monthly average imports in the last 12 months. There is slight uptick in the sector and palm oil imports kept at higher levels due to skyrocketed prices. Overall, food imports in 11MFY22 stood at $7.6 billion. The story of machinery imports is similar – stood at $799 million in May as compared to $821 million monthly average imports in the last 12 months. There is some decline in the machinery imports in PBS numbers which suggests that influx of TERF related machinery imports is slowing down. Overall machinery imports in 11MFY22 stood at $8.9 billion.
Transport imports are showing higher momentum which continued during May. The toll stood at $325 million in May as compared to $310 million average imports in the last 12 months. And the 11MFY22 imports stood at $3.4 billion. $294 million worth of CBUs cars are imported in the 11MFY22 while CKD cars imports toll stood at $1.6 billion.
The story to tell is within petroleum group. In this sector, due to newly formed PDM government enthusiasm, higher imports are taking place for RLNG and Furnace Oil in a failed attempt to lower the load shedding with former at exuberant spot prices (in addition to long term contracts). Then the petroleum prices were kept frozen in May and the demand remained unabated. That is why petroleum products’ import (PBS) is by far the highest monthly number of $2.6 billion. But as explained above, the SBP numbers stood at mere $1.4 billion. And the gap will result in higher petroleum imports number in June. Some of these petroleum imports might be through deferred oil payment – but the quantum is low.
In case of goods exports, the decline of 21 percent to $2.5 billion is one of the prime reasons for higher current account deficit. The textile exports remained almost same at the previous month’s level ($1.54bn in May vs $1.59bn in April) while the decline is primarily in non-textile exports – which are down by 40 percent to $948 million on monthly basis. The decline could be due to one-off reasons. One has to wait for the June numbers before making any firm view on the decline.
The overall goods’ exports stood at $29.3 billion in 11MFY22 – up by 27% and are all set to cross $32 billion for the full year which is going to be the highest ever number in a year. The overall imports on the other hand are increasing by 36 percent to $65.5 billion in 11MFY22. Goods trade deficit is up by 45 percent to $36.1 billion. And the deficit of trade of goods and services is up by 48 percent to $40.1 billion. Remittances remained high at $28.4 billion; but are not enough to cover the trade deficit and that is why current account deficit stood at over $15 billion in 11M.
In the next year, there will be a limit to what exports and remittances can grow over a high base. The imports have to be cut to taper the current account deficit and seeing the persisting high commodity prices, a significant slowdown in the economy is warranted. And the economy is moving in that direction.
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