In positive economic development, Pakistan’s current account deficit registers significant decline

In positive economic development, Pakistan’s current account deficit registers significant decline

Imports (reported by PBS) are down by 37 percent from the previous month to $4.99 billion in July. The detailed numbers are out. The prime decline is in the petroleum imports -down 60 percent to $1.4 billion. Barring petroleum, the fall is mere 16 percent from $4.2 billion to $3.6 billion. And majority of the non-oil decline is due to imposition of informal bans in the form of allowing selected L/Cs to open and retire.

Within oil, the decline is due to building of inventories at peak prices. Imports will pick up in August. Thus, it’s hard to say about the demand driven factors (due to higher interest rates, PKR depreciation, passing on the energy prices and imposition of higher taxes) in the decline of both in petroleum and all other imports. Petroleum numbers will become clearer by August while in case of other imports the demand situation would get clearer once the L/Cs approvals won’t be requiring SBP’s nod.

In July, food imports almost remained at its levels. Stood at $763 million – up by 35 percent MoM. However, the toll is in line with the last twelve-month average of $761 million. The biggest share is of palm oil -$299 million. Here the prices are coming down in the international market, but is not reflecting in the import bill. Perhaps, the case of building inventory at peak prices is true for palm oil imports as well. In months to come, the palm oil imports should come down to ease the food import bill.

The machinery imports stood at $628 million in July. Although it’s slightly up from the last month, but it is on a decline – down by 31 percent from the average monthly imports of last twelve months. The prime reason for the fall is administrative measures in opening of L/Cs. The mobile phone (both CKD and CBU) were the first one to come under control from the last month. In June, imports were $32 million and the toll is $39 million in July. The average monthly number in the previous 12 months was $182 million. There is a straight reduction of around $150 million per month in this one item alone.

The other area where the decline of administrative measures is evident is automobiles – imports down by 45 percent to $209 million in July. Here the administrative measures started to be implemented in July. CKD cars imports are down to half to $68 million in July. That is the new norm (till it is changed). SBP is giving 50 percent quota of imports to automobile manufacturers. The fall in CBU cars is 60 percent. And this will remain like this for some time, as higher duties are now being imposed.

The real benefit comes from petroleum imports. On a monthly basis, the fall is by massive 60 percent. And the fall is 28 percent from the previous 12 months average. The lower import in July is primarily contributing to higher imports in June which is almost double of the last twelve-month average. The month could not be worse. Not only imports were at all high time high in terms of volumes (for petrol and LNG); but the prices were also at 13-years high.

Enough has been said on the issue in this space. Just to emphasize the point that higher volumes were being imported at peaking prices, here are some numbers to support. The Brent price averaged at $120/barrel in July as compared to the previous twelve-month average of $87/barrel, and in July it’s down to $109/barrel. Currently, the price is hovering in 90s. And the top volumes were imported in June – 3.2 million tons of oil versus average monthly imports of 2.0 million tons in the previous twelve months. The toll is reduced to 1.3 million ton in July. This clearly shows that over 1 million tons excess import was done in June.

The decline in other groups of imports, the fall is ranging from 24 percent to 30 percent. There are three factors coming into play. One is that prices are moving down from the peak. Other is informal control on L/Cs by SBP, and the third is curtailment of demand. The risks of demand surging back up once SBP lifts restrictions continue to lurk. Let’s see how the situation unfolds in months to come.