External account – Current account posts deficit of USD457mn in May-11

May-11 current account slips in red: Current account balance for May-11 slipped in the red zone, with a deficit of USD457mn (-0.3% of GDP) for May-11 as compared to a surplus of USD 630mn in April-11. Trade deficit expansion, due to MoM slippage in exports paralleled by rise in imports were the major reasons behind weakness in May-11 current account from the previous month. 11MFY11 current account now holds a surplus of USD205mn (0.1% of GDP) as against a deficit of USD3.4bn (-1.9% of GDP) in 11MFY10.

Overall BoP improved MoM: Thanks to financial account turning in a surplus of USD614mn in May-11 from a deficit of USD1.1bn in April-11. Overall balance of payments posted a surplus of USD143mn in May-11 as opposed to a deficit of USD611mn in April-11.

Risk to external account yet to fully unwind: Textile exports have yet to soften post decline in cotton prices. While oil import bill has started rising, the prevailing shortage of oil products indicates that recent imports have been below average. Remittances’ growth could slow down in wake of weakening global growth outlook.

May-11 current account slips in red

Current account balance for May-11 slipped in the red zone, with a deficit of USD457mn (-0.3% of GDP) for May-11 as compared to a surplus of USD630mn in April-11. Weakness in May-11 current account was driven by spike in trade deficit which rose from USD 316mn in April-11 to USD1.0bn in May-11, as imports rose by USD369mn while exports dropped by USD335mn over the previous month. 11MFY11 current account now holds a surplus of USD205mn (0.1% of GDP) as against a deficit of USD3.4bn (-1.9% of GDP) in 11MFY10.Key reason behind fall in exports during May-11 was plunge in “other exports” which explained 80% of the MoM decline in total exports for the month, whereas the remaining decline was attributed to food group exports. Textile exports remained firm, almost unchanged from previous month’s levels. 11MFY11 current account now holds a surplus of USD205mn as against a deficit of USD3.4bn in 11MFY10.  Imports, on the other hand, jumped due to higher petroleum imports (+USD253mn from the previous month), as well as increased imports of transport goods (+USD51mn) after the auto industry in Japan streamlined production operations post Mar-11 Tsunami. Imports of “agricultural group” and “others” also witnessed MoM increase in imports.

Overall BoP improved MoM

Overall BoP position actually improved in May-11 on MoM basis, with a surplus of USD143mn in May-11 as opposed to a deficit of USD611mn in April-11. Improvement in overall BoP was largely due to financial account turning in a surplus of USD614mn in May-11 from a deficit of USD1.1bn in April-11. The wide variation in financial account was on account of “other investment assets” of the banking sector, which increased in April-11 (outflow) with a subsequent fall in May-11 (inflow).

Risk to external account yet to fully un-wind

Textile exports have yet to soften post decline in cotton prices, as May-11 textile exports were largely unchanged from the previous months. Cotton prices have plunged 40% to USD1.38/lb (Jun 17th, 2011) from Mar-11 average of USD2.3/lb. Changes in input prices generally reflect in exports receipts with a lag of 2-4 months. While oil import bill has started rising – with Mar-11 to May-11 monthly imports averaging USD1.2bn as compared to an average oil import bill of USD1.0bn during Dec-10 to Feb-11. However, prevailing fuel shortage indicates that recent imports have been lower than the country’s requirement, indicating further likely upside in oil imports. While remittances’ growth has remained firm, with May-11 remittances at USD1.05bn, up 39% YoY, future growth could slow down in wake of weakening global growth outlook.

Economic & Political News

Pakistan to sell OGDCL bonds before 30th

Pakistan is all set to market exchangeable bonds of OGDCL by June 25-26 One team headed by Dr. Nadeem-ul-Haq, Deputy Chairman Planning Commission, comprising secretary privatization, OGDCL’s acting MD and a director of SBP will leave the country on Saturday for Singapore and Hong Kong to float the OGDCL exchangeable bond. Another team comprising CFO of OGDCL and one director of Privatization Commission and two other members will leave for Abu Dhabi and London and ensure the transaction of USD500mn before June 26.

EoI invited for secondary public offering of PPL shares

The Privatization Commission (PC) has invited Expression of Interest (EoI) from lead manager/book runners, for the secondary public offering of Pakistan Petroleum Limited (PPL)’s approximately 2.5% (21.1mn) shares through domestic stock exchanges.
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