CA surplus – will it sustain? – BR Research

G. Samdani Avatar



The current account surprisingly posted a surplus of $619 million in March 24,which is the highest surplus since Feb-15. This high surplus is perhaps one-off – due to the Ramzan effect, as remittances and other current transfers were much better – barring the secondary income account, the current account deficit would have been higher as compared to the previous month.

The other reason for higher inflows in the home remittances, which stood at $2.95 billion – which is highest since April 2022, is slowdown in the capital flight from Pakistan, and perhaps people are not as frantic on moving the savings abroad, as they were last year. This also implies the expectations of any sharp depreciation in PKR are dying.

That is good news, and seeing the better inflows, higher current account deficit, tight fiscal policy, and falling non-perishable food items prices, SBP should think about monetary easing soon.

Economic demand is down. The Imports toll (by payment) is consistently coming below the $4.5 billion mark. However, some people are speculating that the demand is picking up based on the PBS import data (on actual quantity). The toll stood at$4.87 billion – highest since December 2022.

The noticeable increase is in petroleum imports – within it, crude oil imports at 945k tons -22 months high. Then the gasoline imports stood at a six-month high. These numbers are counterintuitive, seeing the massive decline in petroleum products sales due to increased smuggling volumes and falling demand.

And how can official imports peak when one refinery has shut down due to low off take of diesel?

What is happening is that one company in the South has imported unusually high volumes of crude oil. The buzz is that the company is importing Russian oil at discount and perhaps at good credit.

Apart from petroleum, the imports in palm oil were higher both in quantities and USD. This could be due to higher pakora and other fried stuff in Ramzan and Eid. There is a slight increase in imports of machinery and metals; but numbers are still far from their peak.

The story of exports is not that great. The toll stood at $2.5 billion, which is slightly better than the last 12-M average. However, it seems that the number may fall going forward – especially the bonanza of rice exports is fading away, and the textile and apparel guys are struggling to cope with demand and margins due to growing energy prices.

The policymakers cannot think about generating any demand upon seeing a higher monthly current account surplus, as the sustainability of higher rice exports and inward remittances are doubtful. That is why SBP should keep the real rates positive. And the current account should ideally remain near zero – the 9MFY24 deficit stood at a marginal $500 million.

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