The economy is unofficially in a zero current account deficit (CAD) mode, and it is an unannounced policy of SBP, as banks are being asked to manage their inflows and outflows i.e. zero CAD. That is an implicit necessity unless the FDI starts flowing in (or markets begin to offer fresh external debt), till then Zero CAD and zero (0-2% GDP) growth is the story of Pakistan.
The official current account numbers depict a similar trend – the current account has been almost in balance for the past four months (Aug-Nov) where the average monthly CAD stood at a mere 96 million – rounding off to zero. And in Nov, there is a surplus of $9 million. The overall CAD for Jul-Nov (5MFY24) stood at $1.1 billion which is one-third of the previous year’s same-year deficit of $3.3 billion.
The goods exports stood at $2.7 billion in November 2023, which is on the higher side, if we see the last twelve months’ trend. The number was $2.8 billion in October, and it remains high in November as well. The reason is that due to the crackdown on smuggling, the currency has been appreciating in Sep and Oct, and at that time, exporters were not only bringing more dollars in ready but also were selling forward which is being reflected in export numbers.
In 5MFY24, the exports are up by 5 percent to $12.5 billion. The detailed numbers are available till October, and in the 4MFY24, textile exports were down by 12 percent to $5.5 billion, and similar is the trend for other manufacturing groups which are down by 7 percent to $1.3 billion in 4MFY24. These are the traditional exporting five sectors to which all export promotion policies are skewed.
Interestingly, other exports, where the government is not providing any subsidy or preferential treatment are doing better. Food exports are up by 25 percent, other times have increased by 19 percent and then some of the exports are being routed through non-banks. A silent change is happening, as economic slowdown and excessive currency depreciation, have forced and incentivized many inward-looking sectors to tap for exports. However, growing energy cost is hampering the potential of manufacturing sectors.
The story of import is simple. Although, combination of compression and demand suppression continues, the imports are slightly picking up. It stood at $4.5 billion in November 23 which were the highest monthly imports (SBP data) since October 22. The story of PBS number is not much different either.
The import trends suggest that the economy has bottomed out. For instance, the 12M moving average, both for machinery and petroleum imports, inched up in October (November detailed numbers are yet to come). The uptick in petroleum numbers is despite the fact that international oil prices are coming down. Thus, the demand is moving up. This is evident by the fact that petroleum consumption is growing – both for petrol and diesel, lately. One can plot this against the decline in petroleum prices in PKR. Thus, the full passing on of the decline in international prices to consumers are having a bearing on imports.
However, imports such as automobiles and other items are still down, as the price decline has to be enough in to spur demand.
The overall trade deficit of goods is down by 35 percent to $8.8 billion in 5MFY24. Then the exports of services is not growing (down by 3% to $3.0 bn in 5MFY24) while services imports are up by 21 percent to $4.1 billion. The overall goods and trade deficit is down by 28 percent to $9.9 billion.
The story of worker remittances (just like services exports) is not great. The toll is down by 10 percent to $11.0 billion in 5MFY23. Some of these flows are trimmed down while partly are coming through informal means. The overall macro picture has to improve to let these flows move up.
Till then, curbing imports is the strategy to adopt. However, imports are slightly moving up, and that is the vulnerability the external sector cannot afford. Thus, lowering interest rates and/or appreciating PKR (along with lower petroleum prices) may bode well for short-term inflation, but would keep the SBP’s medium-term target of 5-7 percent elusive.
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