EUR 4.56 For Business Accounts Only

Pakistan Economy: BOP concerns building up; comfortable in 2017 though

• Pakistan’s external account kicked off 2017 with a dispiriting start; current account deficit for Jan’17 clocked in at US$1.2bn (7MFY17: US$4.7bn; up 90%YoY), slightly shy off 1HCY16’s headline figure (US$1.4bn). GoP’s recent move to borrow US$600mn from two Chinese banks is a clear move to address short-term BOP concerns; we are comfortable in 2017 but foresee a macro adjustment post elections, in our view.

• Trade deficit in Jan’17 stood at US$2.9bn, up 75%YoY, taking 7MFY17 deficit to US$17.4bn (up 29YoY). Exports in Jan’17 remained flat at US$1.8bn (down 3%YoY in 7MFY17); meanwhile, imports surged by 37%YoY in Jan’17, (up 14%YoY in 7MFY17), driven majorly by an uptick in Food, Autos & Machinery related imports.

• Remittances in Jan’17 stayed flat, backed by recent recovery in proceeds from the US. Flows from Saudi Arabia (down 6%YoY in 7MFY17) continue to drag headline growth. Current run rate suggests that remittances should close FY17F at c. US$19.5bn, not enough to relieve pressure off the current account (FY17F: 2.5% of GDP).