Pakistan Economy: CAD Continues to calm-down
- Caving-in to drastic macro shifts, coupled with significant spillovers for demand compression at home (monetary tightening with PkR weakness), lead the Current Account Deficit for April'19 to rest at US$1.2bn down 45%YoY but up 43%MoM
- This takes cumulative 10MFY19 CAD to US$11.5bn improving by 27%YoY and translating to 4.8% of GDP, where crucial elements of the import deficit (recorded at US$23.9bn, down 7%YoY) deteriorated against a tough backdrop for economic growth and consumer demand (retail POL products, HSD in particular)
- The slide in FDI flows (down 52%YoY to US$1.38bn) was expected as gestation period for CPEC projects is reached, while one-off investment flows are shunned (no major M&A activity), while funneling of remittances to formal channels (US$17.9bn growing 8%YoY) cushioned against major slippages
- While the sustainability of demand suppression measures to keep the CAD in check imply a trade-off against economic growth, long term sustainable solutions to manage funding for a US$8-10bn annual deficit remains the most arduous challenge this Government faces. PM Khan's upcoming visit to Saudi Arabia will highlight the same, where rolling over of previous facilities is likely to be a desired outcome.
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