Morning Call about Balance of payment

Karachi: : The country’s current account deficit for Jul’11 narrowed considerably by 88% to USD 75mn compared to USD 631mn same period last year. According to Arif Habib Limited, this […]

Karachi: : The country’s current account deficit for Jul’11 narrowed considerably by 88% to USD 75mn compared to USD 631mn same period last year.

According to Arif Habib Limited, this help pushed the overall country’s balance of payment to register a surplus of USD 78mn against a deficit of USD 334mn recorded in Jul’10, this is despite a weakening financial accounts position which posted a surplus of USD 142mn against USD 297mn in Jul’10. Strong growth in remittances alongwith robust export earning continues to remain underlying factors for current account deficit shrinkage. However in FY12 Arif Habib Limited expects there is less room for complacency. Amid at the recent global economic growth slowdown Arif Habib Limited may sees some of the sub heads of balance of payment coming under pressure. Hence any sharp deterioration in current account balance will be met through financial account, which given the current scenario will be less of a help.

Remittances and export growth continues to support CAB

With the start of FY12 the country’s current account provided much of a relief as the total deficit narrowed down to USD 75mn from USD 631mn last year same period showing a 88% improvement. This was supported by a 39% YoY (USD 1.1bn) growth in workers’ remittances and favourable export earnings of 28% YoY (USD 25.46bn). However the country’s trade balance still remains under the red zone, which continues to expands despite a stagnant growth of 8% YoY in imports (USD 3.15bn).

Falling in global appetite holds major implication in balance of payment

However going forward Arif Habib Limited thinks there is less room for complacency given the slowdown in global economic appetite. The trigger comes with the recent downgrade of US rating to AA+ by S&P and major EU countries rating being under consideration including UK, on the back debt driven crisis in the EU. The situation is further exaggerated given the recent rate hike in the India and China, due to high inflation projection. This will considerably weigh down on overall global economic recovery process to a mere halt. Therefore a key determinant to country’s external account outlook would be how favourable does the global economic events unfolds.

Exports likely to take a hit given the slowdown in demand

For instance the total exports are likely to come under pressure as global commodity prices eases (cotton prices as of Jul’11 stood at ~USd 149/lb against a high of USd 229.67/lb in Mar’11) while volumetric may also suffer due to overall weightage to US (~19% of the total exports) and EU countries (~12% of the total exports). Arif Habib Limited expects the exports to post a mere increase of ~4% YoY in FY12 to reach USD 26.5bn.

Slowdown would also trigger down to workers remittance falling short…

Similarly, although the chunk of workers’ remittances makes its way through GCC countries, but again US and EU countries combined makes upto ~27% of the country’s total remittances. Any slowdown in these countries will likely hurt the workers’ remittances inflow into the country in the long-run.

While descending oil prices will come as a major relief

However, on the flip strong economic fundamentals advocates towards the oil prices starting to descend (Arab light USD 105/bbl as of 18 Aug’11), which have remained elevated in much of the 2HFY11, USD 107.4/bbl on average against USD 79.1/bbl in 1HFY11, (+38%). This Arif Habib Limited believes would have major implications on the country’s imports as ~38% of the total Imports are related to petroleum related products. Arif Habib Limited estimates 3% fall in price of oil results in 1.8% cut down the total import bill per month, this may a major relief, given the bulging import bill which as of FY11 stands at USD ~36bn, 13% YoY rise.

Sluggish financial accounts pace, adds to the worry

The financial account balance remained shallow owing to falling foreign inflows. The Foreign Direct Investments (FDI) which posted a YoY decline of 17% (USD 91mn in Jul’11). In Pakistan the decline in foreign investments trend underlines factors faced primarily on the domestic and then external macro-economic front. For instance ~26% and ~12% (based on a 5-year average) of portfolio and foreign direct investment makes it way in to the country, through US and EU countries.

Pakistan’s Balance of Payment

 

Balance of Payment Jul-11 Jun-11 %MoM Jul-11 Jul-10 %YoY
Current Account Balance (631) 501  n.m (75) (631) -88%
Exports 1,657 2,665  -38% 2,122 1,657 28%
Imports 2,923 3,357 -13% 3,151 2,923 8%
Trade Deficit (1,266) (692) 83%  (1,029) (1,266) -19%
Remittances 791 1,105  -28% 1,096 791 39%
Capital Accounts   – 10  n.m  –  – n.m
Financial Accounts 297  512 -42% 142 297 -52%
Direct Invest. (FDI) 110  162 -32%  91  110 -17%
Port. Invest. (PI) (2) n.m  –  – n.m
Overall Balance (334)  1,140  -129% 78  (334) -123%
Source: State Bank of Pakistan, AHL Research

 

 

Outlook

Hence based on aforementioned assumptions Arif Habib Limited foresees a current account deficit in FY12, therefore plugging in the deficit gap will be laid on financial account. However, Arif Habib Limited doubts that the financial inflows in FY12 would be enough to bridge the void left by current account deficit. Arif Habib Limited fears that financial inflows may not exceed USD 2bn, owing to global economic slowdown, political and economic turbulences. Monetization of funds under military aid (expected aid of USD 2.4bn per year); Coalition Support Fund (CSF) and most importantly through IMF SBA will render support to overall balance of payment.

Morning Briefing for August 18, 2011

Karachi: Record GST collected in July despite rate cut Despite reduction in the rate from 17% to 16%, the net sales tax have shown record collection of Rs 55.513bn during […]

Karachi: Record GST collected in July despite rate cut

Despite reduction in the rate from 17% to 16%, the net sales tax have shown record collection of Rs 55.513bn during July 2011 against Rs 40.800bn in the corresponding period of last fiscal year, indicating an increase of 67%.

According to Standard Capital, a decent balance has been maintained in General Sales Tax (GST) regime in the budget with reduction in rate from 17% to 16%, however, levying GST on tractors, pesticides, fertilizers and few other items have resulted in a record growth of around Rs 15bn in GST alone in July 2011.

Current account regains deficit position in July
The current account has shown a deficit of US$75mn in the first month of current financial year despite standing at surplus position in the previous month. Current account deficit decreased by 88% in July 2011 as compared to the same month of the previous fiscal year in which it stood at US$631mn. High import bill on the surge of commodities’ value and quantity reflected the negative balance of payment despite handsome remittances and exports earnings. The trade deficit stood at US$1.029bn in July with US$2.12bn exports and US$3.15bn imports. The imports of petroleum products have increased the weight of balance despite handsome exports values. On the other hand, remittances and foreign investment offset trade deficit impacts with inflow of US$1.096bn and US$62mn.

Pakistan to borrow US$300m from local banks to build gas pipeline
Pakistan plans to borrow US$300mn from local banks to build a pipeline that will carry natural gas from Iran, easing its worst energy crisis that is curbing economic growth. State-owned companies will provide about US$210mn in equity for US$1.3bn pipeline, said acting managing director of Inter State Gas Systems Ltd, who is responsible for gas pipeline project.

Textile industry: Manufacturers moving to Bangladesh
Faced with a chronic energy crisis in Pakistan, many textile manufacturers in Faisalabad, the country’s textile hub, are moving their manufacturing units to Bangladesh. Bangladesh has been offering a lot of incentives, including uninterrupted power supply (at cheaper rates than in Pakistan), tax-free status for the first ten years and tariff-free access to markets in the European Union. These incentives have convinced many Pakistani businessmen to invest heavily in Bangladesh. The owner of Tauseef Enterprises has already invested Rs300mn in setting up a textile factory in Bangladesh. Others, like K&M Textile, are considering doing so.

Busy day for ECC: Oil marketing company margins increased by 32%
ECC increased the margin of OMCs on petrol by 32% and fixed it at Rs1.98 per litre against the current margin of Rs1.5. The dealers’ profit on petrol was increased by 26.7% or Rs0.5 per litre. The total increase on petrol prices will be less than a rupee. The margin of OMCs on diesel was increased by 30% or Rs0.41 per litre. The new margin is Rs1.76 per litre against the current margin of Rs 1.35 per litre. The dealers’ margin on diesel was increased by almost 47% or 70 paisa per litre, to Rs2.20 per litre. The total increase in diesel prices will be Rs 1.20 per litre.

Morning Buzz for August 18, 2011

Karachi: Current account deficit narrows to $75m in July According to MR Securities, Pakistan’s current account deficit narrowed to $75 million in the first month of the current fiscal year […]

Karachi: Current account deficit narrows to $75m in July

According to MR Securities,

Pakistan’s current account deficit narrowed to $75 million in the first month of the current fiscal year compared to $631 million in July last year, central bank data showed on Wednesday.

PIBs auction: bids worth Rs 41.2 billion accepted
The State Bank of Pakistan on Wednesday conducted auction of Pakistan Investment Bonds (PIBs) and accepted bids worth Rs 41.2 billion with a realised amount of Rs 38.31 billion. The SBP received Rs 67.217 billion with a realised value of Rs 62.233 billion worth bids for the sale of 3-, 5-, 7-, 10-, 15-, 20- and 30-year bonds.

Al Meezan announces dividend for MBF
The meeting of Board of Directors of Al Meezan Investment Management Limited (Al Meezan), Asset Management company of Meezan Balanced Fund (MBF) Meezan Islamic Fund (MIF), Meezan Islamic Income Fund (MIIF), Meezan Cash Fund (MCF), Meezan Sovereign Fund (MSF) and Meezan Capital Protected Fund-I (MCPF-I matured on June 29, 2011) was held on Tuesday, August 16, 2011 to approve financial results for year ended June 30, 2011.

MoF, PD oppose MNCs”, dealers” margins hike
The Ministry of Finance and Planning Division have reportedly opposed upward revision of profit margins of the oil marketing companies (OMCs) and petroleum dealers–for different reasons–sources told Business Recorder.

PQA in process of awarding second oil terminal without tendering
The Port Qasim Authority (PQA) is in the process of awarding second oil terminal to Fotco, without open tendering, according to a complaint received by Transparency International-Pakistan. The complaint pertains to the alleged ‘illegal award’ of oil terminal, on BOO basis, to Fotco in 1992 and efforts to award second oil terminal to the same party without open tendering.

CNG industry threatens strike
The associations of people associated with compressed natural gas business have threatened a complete strike, if the government continues with “victimising this business”.

Margin raise for OMCs, refineries cheer up investors
The Karachi Stock Exchange (KSE) surged on Wednesday as shares rallied across the board after the government increased profit margins of oil marketing companies and dealers, emboldening investors to look at other profitable firms as well, traders said.

Businessmen concerned over rise in unemployment
Businessmen have expressed concern on the ever-increasing unemployment that is not only due to the inability of the economy to absorb two million youth that enter workforce every year, but also due to massive retrenchment of existing jobs, analysts said on Wednesday.

‘Agriculture sector facing acute urea shortage’
Agriculture sector is facing an acute shortage of urea due to continuing gas outages and curtailment on fertiliser manufacturing plants across the country, according to a research paper on Wednesday.

Technical faults become regular in PIA aircraft
Pakistan International Airlines (PIA) has damaged its position severely due to frequent technical faults developing in its aircraft, depicting inadequate maintenance that some circles allege is being done to create justification for purchase of new aircraft.

International body offers help to Pak SMEs
The International Council of SMEs (ICSMEs) has said that it would help the Pakistani Small and Medium Enterprises (SME) sector acquire advanced technology, a statement said on Wednesday.

Pakistan Steel repairs its blast furnace
Hundred percent productions has been made possible after the repair of blast furnace, a Pakistan Steel statement said on Wednesday.

Amendments to the Finance Bill: RGST chief claims his proposals were altered
The dissenting notes made by a Federal Board of Revenue (FBR) official to proposing amendments to the Finance Bill for the current fiscal year approved were allegedly altered before they reached the table of the chairman FBR, by using correction fluid, The Express Tribune learned on Wednesday.

Textile industry: ‘Give me electricity or I will move to Bangladesh’
Faced with a chronic energy crisis in Pakistan, many textile manufacturers in Faisalabad – the country’s textile hub – are voting with their feet and moving their manufacturing units to Bangladesh.

KESC unveils coal conversion project
The Karachi Electric Supply Company Limited (KESC) is developing a project for converting the Bin Qasim Power Station (BQPS) to the country’s first-ever coal-fired power generation from the current natural gas or furnace oil mix.

Landmark achievement: FBR, SRB finally resolve issues
In a major breakthrough on sales tax collection on services, the Federal Board of Revenue (FBR) and the Sindh Revenue Board (SRB) on Wednesday held successful negotiations regarding sales tax on services sector while the SRB agreed to give its consent, authorising the FBR to collect sales tax on telecom and financial services, advertising services, construction and franchise services.

FBR to process all unpaid claims of SED drawback
The Federal Board of Revenue (FBR) has decided to process all unpaid claims of special excise duty (SED) drawbacks paid on export following clearance of the Sales Tax Automated Refund Repository System (STARR), a system used for processing sales tax refund claims.

MoF, PD oppose MNCs’, dealers’ margins hike
The Ministry of Finance and Planning Division have reportedly opposed upward revision of profit margins of the oil marketing companies (OMCs) and petroleum dealers–for different reasons–sources told Business Recorder.

Amendments to the Finance Bill -RGST chief claims his proposals were altered
The dissenting notes made by a Federal Board of Revenue (FBR) official to proposing amendments to the Finance Bill for the current fiscal year approved were allegedly altered before they reached the table of the chairman FBR, by using correction fluid, The Express Tribune learned on Wednesday.

Bhatta mafia: Extortion reaches new highs in guise of Zakat, Fitra
The holy month of Ramazan brings both good news and bad news for businesses in Karachi. Good news because it is the annual season for sales and bad news because the „bhatta’ mafia steps up its activities in this month.

AKD Quotidian about — AGTL: 1HCY11 Result Preview

Karachi: The Board of Directors of Al-Ghazi Tractors (AGTL) is scheduled to consider the company’s 1HCY11 financial results today. According to AKD Securities expects AGTL to report NPAT of PkR1 […]

Karachi: The Board of Directors of Al-Ghazi Tractors (AGTL) is scheduled to consider the company’s 1HCY11 financial results today.

According to AKD Securities expects AGTL to report NPAT of PkR1 ,14Omn (EPS: PkR26.54) in 1HCY11 against NPAT of PkR998mn (EPS: PkR23.24) in 1HCY10, translating into a growth of 14%Y0Y. Growth is expected to stem from higher prices (up 6%Y0Y) and higher `other income’ on the back of increase in cash balance (receipt on sales tax dues from the government) coupled with higher interest rates (average 6M KIBOR up l4ObpsYoY to 13.73% in 1HCY11).

Despite higher tractor prices however, 1HCY11 Gross Margin is expected to remain flat at 19.4%. On a sequential basis, earnings are expected to decline by 17%QoQ to stand at PkR5lBmn (EPS: PkR12.07) in 2QCY11. Decline is expected to come mainly from a 26%QoQ contraction in the top line due to sequentially lower volumes (down 26%QoQ), as tractor demand deteriorated post GST Levy and erosion in farmer economics (higher fertilizer prices, lower cotton prices). To add to tractor manufacturers’ woes, news reports indicate a potential government decision to allow duty free import of reconditioned tractors.

While AKD Securities has a Buy stance on AGTL (CY11F PER: 3.86x) based on AKD Securities targets price of PkR313.5/share (upside: 59%), AKD Securities cautions investors to remain sidelined in tractor scrips in the near-term, particularly as 2HCY11 has commenced inauspiciously (89%Y0Y decline in Jul’11 volumes).

PSMC: 1HCY11 Result Preview

Pak Suzuki Motor Company Limited (PSMC) is scheduled to announce its IHCYII financial results today. AKD Securities expects the company to report NPAT of PkR241.3mn (EPS: PkR2.93) in the review period against NPAT of PkR280.8mn (EPS: PkR3.41) in the corresponding period last year, translating into a decline of 14%YoY. The decline is expected to come from higher steel costs (up 14%YoY) coupled with PkR depreciation against JPY (down 13%YoY), despite higher volumes in the review period whereby the company sold 41,717 cars (up 8%YoY) and 10,557 motorcycles (up 16%YoY) in 1HCY11.

Operating in a high cost environment, the company is expected to post a decline of 5ObpsYoY in the gross margin to 2.73%. Consequently, the operating margin should also decline to 1.05% in 1HCY11 from 1.2% in 1HCY10. Sequentially, PSMC is expected to report NPAT of PkR127.6mn (EPS: PkR1.55) in 2QCY11 against NPAT of PkRII3.7mn (EPS: PkR1.38) in the previous quarter as lower revenue leads to lower effective tax as compared to previous quarter.

Going forward, although the Pakistan auto industry continues to face headwinds particularly if the GoP allows more concessions for import of reconditioned cars, PSMC may show improved volume uptick on the back of its agreement to provide the Mehran and Bolan variants for Government of Punjab’s yellow cab scheme. At current price level, AKD Securities has a Buy stance on PSMC, which offers an upside of 23% to AKD Securities targets price of PkR80/share.

Pakistan’s stock weightage at 3.98% in MSCI

Karachi: The MSCI indices provider has maintained a status quo on the weights of Pakistan’s stocks at 3.98% in the Frontier markets. According to Alfalah Securities Limited, Pakistan’s stocks weightage […]

Karachi: The MSCI indices provider has maintained a status quo on the weights of Pakistan’s stocks at 3.98% in the Frontier markets.

According to Alfalah Securities Limited, Pakistan’s stocks weightage has witnessed a slight decline from its preview in May at 4.09%, primarily on the current ruling prices.

Current Account Deficit declined by 88% in July FY12

Karachi: The Current Account Deficit stood at USD 75 mn in July 2011 against USD 631 mn in July 2010, depicting a decrease of 88% on YoY basis. According to […]

Karachi: The Current Account Deficit stood at USD 75 mn in July 2011 against USD 631 mn in July 2010, depicting a decrease of 88% on YoY basis.

According to Alfalah Securities Limited, this decline in Current Account deficit is attributable to a significant cut in import of trade goods, services and income whereas, high foreign inflows including home remittances have helped to narrow the current account deficit. Alfalah Securities Limited

expects current account balance to improve further which would result in stability of Alfalah Securities Limited exchange rates and would also strengthen Alfalah Securities Limited foreign reserves.

LSM growth stands at 1.14% in FY11

Karachi: The Large Scale Manufacturing (LSM) registered an insignificant growth of 1.14% in FY11 as compared to the corresponding period last year, on account of improved performance by the textile, […]

Karachi: The Large Scale Manufacturing (LSM) registered an insignificant growth of 1.14% in FY11 as compared to the corresponding period last year, on account of improved performance by the textile, automobile, electronic goods and sugar sector.

According to Alfalah Securities Limited, the large scale manufacturing (LSM) is being said to improve further as it witnessed a negative growth in the 1HFY11 and posted a growth of less than 1% in the 3QFY11. The Quantum Index Number of LSM indicated 208.25 points as on June 30, 2011 as compared to 205.89 points in the same period last year.

On the other hand, LSM has witnessed a negative growth of 2.95% on MoM basis in June 2011, mainly due to rising energy crisis and worst law and order situation which is also expected to continue within few initial months of the FY12. The breakup of LSM indicates that the positive growth in FY11 is mainly contributed by ministries of industries index by 3.56% while the Oil Companies Advisory Committee (OCAC) and Bureau of Statistics (BOS) index has witnessed a negative growth of 2.27% and 2.09% respectively.

OMC’s and Dealer’s margins hike opposed

Karachi: The Ministry of Finance and Planning Division has opposed the hike in profit margins of Oil Marketing Companies (OMCs) and Dealer’s commission considering the fact that this hike would […]

Karachi: The Ministry of Finance and Planning Division has opposed the hike in profit margins of Oil Marketing Companies (OMCs) and Dealer’s commission considering the fact that this hike would result in a significant increase in the price of Motor Spirit (MS) and High Speed Diesel (HSD) by PkR1.73 per litre and PkR 1.97 per litre respectively.

According to Alfalah Securities Limited, the Finance Ministry has also witnessed that an increase in international prices were absorbed through a decline in petroleum levy which has reduced the revenue of the government. Moreover, the government is still firm to reduce their revenue losses through a hike in petroleum levy. On the other hand, the ministry had also argued that the petroleum levy should be used as a price stabilizing factor rather than a source of revenue for the government.