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Pakistan Economy: Pakistan Current Account in surplus during 1QFY21; Sept-2020 sees surplus of US$73mn

• Pakistan Current Account (C/A) clocked in a surplus of US$73mn in Sept-2020 compared to a surplus of US$211mn in Aug-2020. This was the third consecutive month that Pakistan’s Current Account has recorded a surplus, taking 1QFY21 CA surplus to US$792mn compared to 4QFY20 deficit of US$286mn.
• The Sept-2020 C/A balance came in better-than-expected, where largely a deficit was expected based on earlier released numbers by Pakistan Bureau of Statistics (PBS) on Trade Balance (SBP: -US$140mn MoM, PBS: -US$700mn MoM for Sept-2020). The discrepancy exists because SBP relies on receipts and payments of foreign exchange to compile its data while PBS monitors physical movement of goods. The impact of this may reflect in Oct-2020 C/A balance.
• In Sept-2020, Balance on Trade in Goods deteriorated by US$140mn (-8% MoM) on the back of increase in Imports of Goods by US$581mn (+18% MoM), whereas Exports of Goods improved by US$441mn (+29% MoM).
• The Balance on Primary Income also deteriorated by US$197mn (-61% MoM), however increase in Remittances by US$189mn (+9% MoM) cushioned its impact.
• The C/A witnessed a marked improvement in 1QFY21 vs. its preceding quarter (affected by COVID-19) on the back of US$1.0bn (+17% QoQ) higher Remittances.
• Export of Goods improved by 26% QoQ whereas Imports of Goods increased by 12% QoQ – both offsetting each other in absolute terms.
• The C/A surplus clocked in at 1.2% of GDP in 1QFY21 compared to C/A deficits of 0.4% of GDP in 4QF20 and 2.3% in 1QFY21.
• The Financial Account recorded a deficit of US$510mn in Sept-2020 due to repayment of loans. Foreign Direct Investment (FDI) remained muted at US$189mn, however up 200% MoM.
• Hence, overall Balance of Payment recorded a deficit of US$423mn in Sept-2020 with SBP reserves closing Sept-2020 at US$12.2bn from Aug-2020 closing of US$12.7bn. The latest SBP reserves stand at US$11.8bn. 

Looking forward, we expect the CA deficit to clock in at US$2.5-3.0bn in FY21 (1.0-1.2% of GDP) as COVID-19 related lockdowns and restrictions ease globally and international oil prices also trend up.