Current Account Records a Surplus For The First Time in 2020

[Morpheus]

Current Account Records a Surplus For The First Time in 2020
Posted 9 hours ago by M Yasir

Despite all you’ve heard about the economy recently, it isn’t doing so bad right now. The country reported an optimistic development as the current account reported an increase of $13 million in May 2020.

This is the second surplus reported in recent months. Previously, the current account reported a surplus of $99 million in October 2019 after a gap of four and a half years.


The surplus was due to lower imports compared with higher remittance inflows coupled with export receipts that reported a reduction in value which was much lower than expected by the economic managers.

According to the State Bank of Pakistan (SBP), the current account showed a surplus of $13 million in May. It reported a comparatively huge deficit of $530 million in April and stood at over $1 billion in the same month of last year.

A.A.H Soomro, managing director at Khadim Ali Shah Bukhari Securities told ProPakistani,

Currency should stabilise now near Rs. 165s. Reduction is more import driven. As consumption increases, don’t expect surpluses. It’s a breather for the government coupled with ADB, IMF and WB inflows.

In May 2020, the balance of trade for commodities and services saw a decline of $ 1.612 billion whereas remittance inflows surpassed its value to stand at $1.87 billion which reflected the surplus position of the current account.

From July to May, the current account reported a deficit of $3.28 billion as compared to a deficit of $12.4 billion in the same period last fiscal year, showing a significant difference of 73% or $9.1 billion.

The overall balance of trade for commodities and services fell by 31% or $9.3 billion during the eleventh month of the ending financial year. During the period, exports of commodities and services stood at $20.5 billion and over $5 billion, on the other hand, the import bills of commodities and services stood at $38.8 billion and $7.7 billion respectively.

Remittance inflows stood at $20.6 billion in the period which provided major support to the current account’s position despite the lockdown in different countries.

Improving remittances and exports in the earlier months of the current financial year and then subsequent lowering of the import bill followed by oil expenses in later months contained the imbalance of payment.

As businesses are reopening throughout the world and Pakistan, the expenses under imports are likely to go up in the coming weeks, on the other hand, the export earnings might show a little growth along with remittance inflows.

The present government announced a support package earlier for businesses and industries and devised an incentivized policy to deviate remittances from informal to banking channels.

https://propakistani.pk/2020/06/24/current-account-records-a-surplus-for-the-first-time-in-2020/

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[HttpError]

But then why Pakistani rupee is going down the drain? It is almost about to touch 170 as we speak.

 

[313ghazi]

Tbh businesses have been shut and imports down.

 

[shah_123]

So?

 

[volatile]

But then why Pakistani rupee is going down the drain? It is almost about to touch 170 as we speak.

bcas its feel good news as Import bill decreased ,now import bill start to increase from July mainly due to oil we will see .

 

[blueazure]

another lie of PTI financial conmen ,

1. we were told that once CAD goes plus, dollar will come down ( reverse is happening as we speak, dollar is spiking to 170)

2. CAD reduction is merely total shut down of imports . exports are the same

Tbh businesses have been shut and imports down.

shut is a very kind word indeed ,



crushed and destroyed is more like it ,

 

[Tair-Lahoti]

Unfortunately PTI handles are not tweeting the other State Bank tweets. Which says USD 1 billion received this months, 500 Million each for ADB and WB.

 

[Armchair]

This is a very good sign and seems people are too partisan to be happy for their country.

There are many things that determine the exchange rate, not just Current Account. Even tensions with India plays in. Do you think rich Pakistanis are going to hand around for a war with India or start moving their money abroad? This is just one example of many. Shameful how ill educated and hateful against your own country some people are. How will Pakistan survive with this mindset?

 

[TheDarkKnight]

This is a very good sign and seems people are too partisan to be happy for their country.

There are many things that determine the exchange rate, not just Current Account. Even tensions with India plays in. Do you think rich Pakistanis are going to hand around for a war with India or start moving their money abroad? This is just one example of many. Shameful how ill educated and hateful against your own country some people are. How will Pakistan survive with this mindset?

Sad reality is that this bunch called Pakistanis are more loyal and proud of their local irrelevant tribes/zaats/family names and ethnicities rather than the greater nation they are part of. Hence you will see some of the worst people get elected into power just because they are able to satisfy the local biradaris/tribes through local politics.
So people will be happy with a person who can fix the road or renovate their street but then sells out on Pakistan’s core interests - and this is across all provinces: Punjabi local tribes famously say “khata hai lagata bhi to hai”, and I have heard some Sindhis say that “Zaradri only loots in Punjab” and some idiots in Pushtoon look at Afghanistan where the Pushtoons themselves are persecuted and disenfranchised, where as Pakistan has the largest and most prosperous Pushtoon population with history of Pushtoon PM, Pushtoon Army chiefs etc.

 

[Bouncer]

Sad reality is that this bunch called Pakistanis are more loyal and proud of their local irrelevant tribes/zaats/family names and ethnicities rather than the greater nation they are part of. Hence you will see some of the worst people get elected into power just because they are able to satisfy the local biradaris/tribes through local politics.

I have yet to meet a single educated PML/PPP supporter who isn't a beneficiary of their corruption. Most have shady businesses that rely on zero tax compliance, some have some distant relative in either of these parties and then there few Einstiens who do not understand fundamentals of economy and sociopolitical factors that dictate the whole thing. It is my humble observation that most anti-PTI posters on PDF fall in this last category. PTI is no magical cure and they surely have their own issues, but credit must be given where its due and they are miles ahead in every Governance metric compared to previous parties.

 

[Morpheus]

11MFY20 CAD: currency to stabilize soon
BR Research June 25, 2020


As expected, May-2020 current account position is marginally in surplus. It looks like monthly imports have bottomed out ($2.8 bn), as have exports ($1.3 bn). Both exports and imports are slated to pick pace in June, driving the current account into deficit. Home remittances are resilient so far; but may take a hit in coming months. 11MFY20 CAD stands at $3.3 billion (1.4% of GDP) – and is down to one fourth of the deficit same period last year.

The impact of lockdown in Mar-Apr on imports had to come with a lag. The figures in May reflect the slowdown in the previous one and a half months. Now the economy is opening up and the oil prices are heading north. Thus, imports shall pick up going forward. In May, imports at $2.8 billion are at 48-months low.

The oil imports (based on PBS data) stood at $327 million in May – that is, one third of oil imports in pre-COVID days. Pressure on oil imports has picked up in the ongoing month. Refineries are operating at suboptimal levels and demand has increased. Oil imports would converge to normal levels in June.



In many other items, imports may remain low for the next few months. PBS based imports averaged at $4.0 billion during Jul-Feb, and thereafter the average fell to $3.1 billion (Mar-May). The number may hover around $3.0-3.4 billion in the next few months. The commodity prices are at discount to pre-COVID levels and are likely to remain low till global demand normalizes. Demand of imports in Pakistan will remain low till the domestic economy is back to its normal – or perhaps a new normal.

The story of exports is rather encouraging now. Exports (on SBP data) stood at $1.2 billion in May – lowest in many years. But SBP data is not a true reflection of the ground realities for the past month or two. It is based on realization of export payments that takes place with a lag of 30-90 days (depending on customer credit, on LC/contract terms). Thus, these reflect with a lag. For impact of global and Pakistani lockdown, PBS data (based on actual shipment) is a better indicator.

PBS-based exports bottomed out at $957 million in April. This was due to low demand from foreign buyers and lockdown both back home (factories were closed for good part of April), and in export-destination countries. Exports recovered to $1.4 billion in May. A leading exporter is of the view that the number shall reach $1.7-1.75 billion by June. Average monthly exports in Jul-Feb stood at $2.0 billion.



That would make for a decent month-on-month recovery in June. In textile, few items have already recovered in quantity terms to pre-COVID levels, but low prices may lead to some decline in value. However, categories in fashion and denim are still struggling. For these to normalize, the world must come out of the COVID fear, which seems a distant future. Thus, exports may hover around $1.6-1.8 billion per month in the foreseeable future.

Some analysts are of the opinion that there is an opportunity to capture the market that China is losing to the US in an ongoing trade war. Theoretically, that is true. But Pakistani export base is narrow, which will take time and innovation to expand. Low productivity is a big roadblock. In terms of existing textile and other areas, many companies were operating at full capacity during pre-COVID times. A few are in expansion phase, but the economic uncertainty is not allowing the industry to kickstart massive expansion.

The surprising element is that home remittances seemingly are unaffected by COVID. That is hard to digest. There are incidences of layoffs in Middle East. Other countries in the region have seen a sharp decline in remittances after COVID. On the flip, a remittance at $1.9 billion May is similar to the monthly average of Jan-March.

Remittances remained partially high due to Ramzan and Eid related flows in the last two months. It would be interesting to see the number in June as there might be some dent. The other reason for resilient remittances is that unofficial channels were either unavailable or they lacked netting off opportunities. One hypothesis suggests that the unofficial remittances have been routed to official banking channels in the past two months. And that has diluted the impact of otherwise official channel decline.

Overall current account deficit shall remain better than pre-COVID in the next few months. Remittances may fall but could be overcompensated by the improvement in goods and services trade balance. Not to mention, there is significant decline in imports of services as travel is low. There are signs of pick up in exports of services (mainly IT related).

The bottom line is that current account deficit is not a big problem anymore. The real challenge is the financial and capital account and for the very reason the currency has remained under pressure lately.

One good stable relationship between Pakistan and Afghanistan news has come from $1 billion inflows from ADB and WB yesterday. Expect $1.4 billion from China in June ($300 mn is expected today). Another $500 million from AIIB is due as well. In total, $2.8 billion capital and financial flows are expected in June and the debt repayment is around $400 million. Reserves are expected to rise to $13 billion in a month or so. Together, these fundamentals suggest that currency should pull back by 5 percent or so in the next few weeks.

https://www.brecorder.com/news/40000849/11mfy20-cad-currency-to-stabilize-soon

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[Yaseen1]

I think we are moving towards primitive way of life and this is benefit of being agriculture nation

 

[Syed1.]

This is a very good sign and seems people are too partisan to be happy for their country.

There are many things that determine the exchange rate, not just Current Account. Even tensions with India plays in. Do you think rich Pakistanis are going to hand around for a war with India or start moving their money abroad? This is just one example of many. Shameful how ill educated and hateful against your own country some people are. How will Pakistan survive with this mindset?

They actually don't care how Pakistan does they just want Nawaz Sharif to be back at the PM's chair. That's all that matters to them.

 

[Armchair]

They actually don't care how Pakistan does they just want their mother's boyfriend Nawaz Sharif to be back at the PM's chair. That's all that matters to them.

That unfortunately is the truth. By the way, Zardari is not only a thug but a murderer. Ask him in private, he will admit it.

 

[Morpheus]

That unfortunately is the truth. By the way, Zardari is not only a thug but a murderer. Ask him in private, he will admit it.

He is much more then that. He used his president power to launder Billions during his term. Up till now, its estimated he has stolen almost $40billion so far.