Contrary to expectations, there is no respite to current account deficit - it stood at $2.2 billion in Jul18 which is the highest monthly deficit number in absolute terms in the history of the country. Previous high was $2.17 billion in Oct 08.

After recording monthly average of $1.98 CAD in Apr-Jun18 quarter, the pundits were expecting results of currency depreciation, monetary tightening and other import curbing measures in the form of some correction in the deficit. However, the actual outcome is in exact opposite direction.

The slippage is primarily in imports which stood at $5.6 billion in July, up by 20 percent yoy and up by 10 percent from monthly average of Apr-Jun18. In absolute terms, it is the highest ever recorded imports number in the history of the country.

This can be termed as hangover of high consumption of petroleum products in the past few months. The petroleum imports recorded at $1.8 billion which is also the highest ever monthly imports in the history of the country.

The number is up by 70 percent versus July17 and 58 percent higher than monthly average imports of Apr-Jun18. This cannot be true as neither the prices shot up to this proportion nor the consumption. There are two elements that attributed to abnormally high imports payment in July.

One is high FO imports in May and June as the payments were made in July. The summer electricity demand (May-June) was high amid low hydro based power production. On average monthly FO imports 590K MT were in May-June versus mere 80k MT average monthly imports in Jan-Apr18. There are zero FO imports in July18 as the demand fell due to less heat whilst the hydro power production increased.

This means that there would be no bill of FO import payment in Aug18; and the petroleum imports bill might fall by $350-400 million due to this FO factor in Aug18.

The other reason for surge in petroleum imports are abnormally high RLNG payment in July which stood at $365 million versus monthly average of $227 million in Apr-Jun18.

There was a case of low RLNG imports payment in Nov-Dec17 (avg monthly imports: $61mn) while the PBS numbers and RLNG terminal data was suggesting normal imports. There was a case of deferred payment which probably squared in July18. Thus, the RLNG imports number may come down by $150-200 million in Aug18. Cumulatively, the petroleum imports bill may come down by $500-600 million in Aug to $1.2-1.3 billion, in line with previous quarter averages.

Apart from petroleum products, the impact of demand tightening and other import curbing measures is visible across the board as apart from agri & other chemical group, all other import sub heads are showing decline - including food, transportation and machinery groups. One may expect imports to further curtail in months to come as the PTI government is clear on austerity.

This is also visible from PBS imports numbers in July18 which is down by 15 percent on monthly basis from $5.7 billion in Jun18 to $4.8 billion in Jul18. The PBS data is on actual shipment basis whose impact will be visible in SBP numbers in months to come.

The Current account deficit is likely to lower by at least $500-600 million to stand at $1.6-1.7 billion in July purely on imports. In case of exports, July numbers have nothing exciting as it stood at $2 billion which is up 10 percent YoY.The marginal increase was already visible in the 4QFY18; and July18 is no different.

The worker remittances stood at $1.9 billion in Jul18 which is exhibiting a jump of 25 percent yoy. That is purely a seasonal jump and it may adjust by $150-200 million in Aug18 to partially offset to the benefit of lower imports in August.

The SBP reserves were up by $432 million in July despite $2.2 billion current account deficit. The FDI was mere $127 million which implies debt accumulation of around $2.5 billion in July.

This trend has to be changed in months to come if the PTI works on prescribed policy to move away from debt fueled growth. Tough. Yet interesting times ahead.

Copyright Business Recorder, 2018

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