EUR 9.33 For Business Accounts Only

Pakistan Economy_Import bans_A band aid instead of surgery!, (AKD Daily, May 20, 2022)

Import bans: A band aid instead of surgery!

Yesterday, the federal government announced the of banning various luxury import items such as mobile phones, cars, home appliances and various other food and daily use items, in order to contain the import bill, however, no decision has yet been taken to roll back subsidy program on the consumption of fuel.
As per our estimates, only about 4 - 5% of import bill (based on FY21 trade numbers) will be affected by these duties and the underlying issues in the economy that result in recurring external account imbalances remain completely unaddressed. A low hanging fruit that can be easily harvested is rolling back the unfunded subsidy program that may also help smooth the negotiation process with the IMF, however the GoP has so far remained indecisive regarding the subject matter. 
Depleting FX reserves have put a severe downward pressure on the currency which has crossed PkR200/US$, depreciating by ~9% since the new government took charge . Currently the country has import cover of less than two months while significant external debt maturities appear on the horizon. Current political setup’s inability to raise fresh capital and/or roll over the maturing debt has compounded the situation even further. 
On the positive side, monthly Current Account numbers for Apr’22 showed a robust improvement from US$1.02bn during Mar’22 to US$623mn in Apr’22. The improvement comes about on the back of a seasonal surge in remittances which were reported at an all time high level of US$3.1bn (up 11.2%MoM).
Market is expected to remain choppy, specially in the wake of rapid currency depreciation and as the talks with IMF linger on. Apart from the macro risks, the investors should also closely track developments on the political front. The valuations are likely to squeeze further as SBP is expected to raise interest rates by up-to 150bps in the coming MPS. We therefore advise investors to remain cash rich and build positions once the interest rate hike and decision regarding subsidy reversal are in the bag.