The Current Account balance for Dec'14 registered a minor surplus of US$76mn compared to a CA deficit of US$568mn (0.24% of GDP) in Nov'14. The surplus for the month came on the back of 1) continued rise in remittances depicting a 19.8%MoM jump (US$1.58bn in Dec'14 vs. US$1.32bn in Nov'14), 2) improvement in the Trade Deficit, which stood at US$1.09bn, an improvement of 10.7%MoM/13.8%YoY due to an uptick in export figures which at US$2.29bn, rose by 22.7%MoM. Food and Textile sector outshined among exports with Food registering growth of 17%MoM at US$470mn, while Textile exports were up 27%MoM at US$1.22bn. However, for 1HFY15, the CA deficit rose to US$2.36bn from US$2.00bn in 1HFY14, but remained stable as a percentage of GDP at 0.98%. The deficit widened for the first half due to a 2%YoY slump in exports during 1HFY15. We expect the CA to maintain the positive trend witnessed in Dec'14 due to an escalation in worker's remittances and relative ease on the import bill as oil prices struggle to find a bottom. Pakistan's currency which has been stable so far (an appreciation of 4% versus the US$ in CY14) is likely to consolidate at current levels as well since foreign reserves remain at comfortable levels (as of 9th Jan'15: US$15.1bn). .
CA posted a surplus of US$76mn in Dec'14: Pakistan's BoP position for Dec'14 ended with a positive surprise as the Current Account clocked in a minor US$76mn surplus compared to a CA deficit (revised) of US$568mn (0.24% of GDP) in Nov'14. The turnaround came on the back of 1) continued rise in remittances with a 19.8%MoM jump (US$1.58bn in Dec'14 vs. US$1.32bn in Nov'14) 2) a 22%MoM increase in exports (maintained by an increase in the heavyweight Textile and Food sectors). However, in comparison to Dec'13, CA slightly decreased from a surplus of $285mn. Consequently, the CA balance for 1HFY15 rounded off with a deficit of $2.36bn, which was higher than deficit of $2.00bn in 1HFY14, but remained stable as a percentage of GDP at 0.98%. The deficit widened for the first half due to a 2%YoY slump in exports during 1HFY15. Workers remittances remained strong, reaching US$8.9bn for 1HFY15, a rise of 15.3%YoY. .
An Improving Trade Deficit: Trade Deficit for the month of Dec'14 stood at US$1.09bn, improving by 10.7%MoM/13.8%YoY on the back of a rise in export figures. Exports for the month of Dec'14, came in at US$2.29bn, up by 22.7%MoM. Impetus from 1) the Textile sector, which showed an increase of 27%MoM at US$1.22bn and 2) the Food group which registered a growth of 17%MoM at US$470mn. Imports for the month at US$3.38bn also saw a rise of 9.5%MoM, while a slump of 5%YoY from Dec'13.
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Textile - The Winner: Textile exports comprised of ~53% to the total exports during Dec'14, exhibiting a growth of 4.4%YoY. On a monthly basis, enhancement in the exporting numbers of both the spinning and value added segments fueled the 27%MoM increment, where hike in the demand on the heels of Christmas and low base stood as the major triggers. Segment-wise, growth in textile exports was led by the value added segment (28%MoM) followed by (24%MoM) growth in the spinning sector. .
Outlook: Pakistan's CA balance, along with the BoP position can be expected to sustain the positive trend going forward with continued expansion in worker's remittances accompanied by relative easing of the import bill as oil prices plunge, struggling to find a bottom. Pakistan's currency which has exhibited relative stability so far (an appreciation of 4% versus the US$ in CY14) is likely to consolidate at current levels as foreign reserves remain at comfortable levels (as of 9 Jan'15: US$15.1bn). The latter can convince SBP to be aggressive in the next MPS (consensus call for a 50bps-100bps DR cut).
