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External Account
Economics| Pakistan
February 13, 2015
February 13, 2015
Pakistan Economic Watch
Morning Shout
Rising comfort on twin deficits;
but challenges remain
Stronger external account, though fiscal targets still unclear
Sarah Mazhar
Sarah.kamran@kasb.com
KASB Securities Limited
+92 21 111 222 000
We believe the fiscal and external accounts should reap the benefit of recent positive macro
newsflow; adhoc revenue measures, US$0.7bn Coalition Support Fund (CSF) receipts, and
soft trade deficit data for Jan-15 (US$0.99bn-lowest since Apr-11). Resultantly, we revise our
FY15 current account deficit (CAD) estimate to US$1.3bn (0.5% of GDP) from US$1.7bn
earlier, since we had assumed only US$1.1bn under CSF head for this year (vs US$1.4bn
received FYTD). However, we opine challenges to fiscal targets remain as the govt has cut
FBR tax target by 4% to PRs2.61tn due to loss in revenue; which would likely have to be
compensated with stricter spending targets.
Reserves likely to cross key threshold
Chart 1: SBP FX reserves increased to 2.7-months
in Feb-14 from <1-month of import cover last year
16.0
14.0
12.0
We highlight the upcoming HBL first phase transaction in Mar-15, expected to generate
US$0.5bn, will be another key test for further increase in reserves. Other major inflows in
FY15 potentially include two more IMF tranches in the best case of smooth progress on
reviews. As a result, we believe total forex reserves to close Jun-15 at US$17.3bn, whereby
reserves held by SBP should be above 3mths of import cover (now at 2.7-mths). This is an
important threshold level of reserve adequacy recognized globally and also by IMF in its third
review document, and may point to a more stable exchange rate outlook. We see upside risk
to our exchange rate estimate (5.3% and 4% for FY15/16E).
10.0
3Q fiscal deficit and govt borrowing from SBP to get cushioned
8.0
6.0
4.0
2.0
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
0.0
SBP FX reserves
Source: SBP, KASB research
Import cover
The realization of budgeted CSF (non-tax) receipts, along with recent 5% hike in regulatory
duty on some items and 10% hike in GST on POL products, should ease concerns on fiscal
deficit in FY15 to some extent. However, all is not rosy on the fiscal side; (1) another
budgeted revenue stream that seems unlikely to materialize within FY15 is that of the 4G
auction as PTA has not yet hired any consultant services (PRs56bn or 0.2% of GDP
budgeted by federal govt), (2) PRs150bn National Action Plan announced although financing
plan of the same is unclear for now and (3) increasing pressure to quickly resolve circular
debt may require more government spending.
In the immediate term, however, thanks to recent inflows, the government should be able to
comfortably retire its borrowing from SBP to bring the stock within ceiling limit of PRs1.905tn
for end of Mar-15. Currently, the stock of govt borrowing from SBP lies at PRs1.912tn (down
PRs88bn from Dec-14 target).
Key risks
1- Legal and political challenges in 4QFY15 related to reforms (privatization, SBP autonomy
bill) and lost revenue stream (GIDC stay order).
2- Commodity price movements, though unlikely to see major swings in near term, could
affect external and fiscal account estimates.
KASB Securities Limited, 5th Floor, Trade Centre, I.I. Chundrigar Road, Karachi
This report has been prepared by KASB Securities Ltd. and is provided for information purposes only. Under no circumstances is to be used or considered as an offer to sell or solicitation of any offer to buy.
While all reasonable care has been taken to ensure that the information contained therein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or
completeness and it should not be relied upon as such. From time to time KASB Securities Ltd. and any of its officers or directors may, to the extent permitted by law, have a position, or otherwise be
interested in any transaction, in any securities directly or indirectly subject of this report. This report is provided solely for the information of professional advisers who are expected to make their own
investment decisions without undue reliance on this report and the company accepts no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its
contents. In particular, the report takes no accounts of the investment objectives, financial situation and particular need of individuals, who should seek further advice before making any investment. This
report may not be reproduced, distributed or published by any recipient for any purpose. The views expressed in this document are those of the KASB Securities & Economic Research Department and do
not necessarily reflect those of KASB or its directors. KASB, as a full-service firm, has or may have business relationships, including investment-banking relationships, with the companies in this report.
Page 1
Pakistan Economic Watch – February 13, 2015
Morning News
KSE-100 Intra-day Movement FIPI
34,232
34,138
High 34,237
34,044
33,950
33,856
33,762
33,668
th
33,574
33,480
Low 33,493
9:30 AM
10:55 AM
12:19 PM
1:45 PM
3:10 PM
Source: KASB Research
Index Data & Volume Leaders
Close
KSE30
KSE100
KSE All
Share
ENGRO
DGKC
EFERT
JSCL
MLCF
Power sector receivables cross PRs590bn mark (BR): Power sector receivables have
crossed PRs590bn as of December 31, 2014 with an addition of PRs77.7bn in the first six
months of FY15. The Ministry of Water and Power claims that it is current on payment to PSO
but PRs172bn are still outstanding and being paid in installments. Despite significantly
reducing generation on furnace oil (FO) at the end of the year, the sector was unable to improve
recoveries until Dec-14; in our view, this was partly because the government almost completely
passed on the lower fuel cost advantage to the consumers. We think the level of receivables in
Jan-15 and Feb-15 will shed more light on the efficacy of the recent measures taken by the
government.
Vol.
US$ mn
% Chg
21,846.34
33,786.42
-1.3%
-1.2%
96.96
144.50
24,389.28
274.56
128.15
84.66
23.02
56.77
-1.3%
-2.4%
-1.7%
-1.9%
1.9%
-1.0%
187.94
26.95
12.29
11.13
9.50
8.54
MLCF conference call on 12 Feb - Key Takeaways (Analyst Comment): In a conference
call yesterday addressed by Mr. Waleed Saigol (Director MLCF) and Mr.Sohail Sadiq (GM
Finance MLCF), MLCF highlighted that they have managed to get a stay order on the
retrospective application of the Alternate Corporate Tax applicable on the company through the
Finance Bill 2014. The company believes it is likely to win the case which will result in reversal
of provisions made for ACT in FY13 and FY14. The company revealed plans to set up a local
coal-based power plant of about 23MW, which will be able to cater to 50% of the company’s
power requirement; however, the project is only under the planning/consideration phase while
no timelines/details of any financial drawdown/L/C opening/plant suppliers have been disclosed
as yet. Moreover, the company has shed light on a shift in the management’s policy towards
paying out to shareholders in a modest, but sustainable way, along with honoring their financial
liabilities and planned capital expenditure going forward. MLCF has also clearly stated that they
do not have any expansion plans in the near term. When the company was asked to comment
on the sustainably of the coal transportation advantage MLCF has over other players due to its
contract with the Pakistan Railway, the company said that the advantage is sustainable, even in
view of decreasing truck freight cost for other players due to decline in POL prices, as revision
in the railway transportation freight charged to MLCF takes into account/ is pegged to the
respective movement in truck freight for other players.
Source: KSE
KSE-100: Top Gainers & Losers FIPI
FFBL
AHCL
Technical View
NATF
Ahmed Hanif
ahmed.hanif@kasb.com
JSCL
ATLH
KSE-100: Looking to target 50DMA
MUREB
ISL
CEPB
The index broke its critical support of 33,900 and tested its daily lower Bollinger band,
closing in the red.
The index could now target 33,000, its 50DMA, as it has given a closing below its 20DMA.
NETSOL
RSI has also broken its double bottom, which is again a bearish sign.
JGICL
Only a closing above 34,350 (20DMA) could change our view form bearish to bullish.
It is recommended to liquidate trading positions on strength.
-5%
-3%
0%
3%
Source: KASB Research
Page 2
Pakistan Economic Watch – February 13, 2015
World Markets and Commodity Prices
International Equity Markets
Asian Markets (Last trading session’s)
Price
All Ordinaries
Shanghai Composite
Hang Seng
BSE 30
Jakarta Composite
KLSE Composite
Nikkei 225
NZSE 50
Straits Times
Seoul Composite
Taiwan Weighted
KSE-100 Index
European Markets (Last Trading Session’s Rates)
Abs. Chg.
5,707.70
3,223.17
24,422.15
28,805.10
5,343.41
1,789.07
17,979.72
5,749.32
3,419.17
1,941.63
9,496.31
33,786.42
-24.0
65.5
107.1
271.1
6.9
-9.9
327.0
-39.9
-25.4
-4.1
34.1
-417.6
% Chg.
-0.42
2.07
0.44
0.95
0.13
-0.55
1.85
-0.69
-0.74
-0.21
0.36
-1.22
Price
ATX
BEL-20
CAC 40
DAX
AEX General
Swiss Market
FTSE 100
American Markets
Dow Jones Ind. Average
NASDAQ Composite
NASDAQ -100
S&P 500 Index, RTH
Abs. Chg.
% Chg.
2,375.85
3,566.91
4,726.20
10,919.65
460.43
8,611.00
6,828.10
54.6
29.0
46.8
167.5
2.2
33.2
9.9
2.4
0.8
1.0
1.6
0.5
0.4
0.1
17,972.38
4,857.61
4,347.97
2,088.48
110.2
56.4
50.7
19.9
0.6
1.2
1.2
1.0
Source: Bloomberg
Foreign Portfolio Investment in Equities
Country
Pakistan
India
Indonesia
Japan
Philippines
South Korea
Sri Lanka
Taiwan
Thailand
Vietnam
Abu Dhabi
Qatar
Day (US$mn)
(5.7)
(60.0)
74.0
22.5
57.9
0.2
265.4
55.2
6.4
8.5
(6.0)
WTD (US$mn)
(10.7)
(300.8)
170.1
(4,004.4)
49.1
(200.6)
6.4
791.7
55.8
27.0
12.3
16.4
MTD (US$mn)
(62.3)
(108.2)
367.3
(4,004.4)
254.4
235.0
11.0
1,633.6
240.0
23.9
38.3
56.1
YTD (US$mn)
12M (US$mn)
(61.5)
2,470.6
385.8
(11,960.5)
783.7
(7,983.3)
11.9
3,777.0
112.3
28.6
9.5
(18.8)
277.9
18,936.2
3,772.5
20,981.2
2,170.1
7,319.1
196.1
18,554.4
(75.5)
75.0
1,006.3
1,835.2
Date
12-02
11-02
12-02
02-02
12-02
12-02
12-02
12-02
12-02
12-02
12-02
11-02
Source: Bloomberg, NCCPL
Forex and Money Market snapshot
6-Month KIBOR (Offer)
12-M T-Bill (Average)
10- year PIB (Average)
PkR/ US$
Current
Previous
Chg.
8.49
8.31
9.88
101.49
8.50
8.32
9.88
101.46
-0.01
-0.01
0.00
0.03
Price
Abs. Chg.
% Chg.
2.37
3.13
4.10
4.9
0.3
1.8
Source: KASB Money Market
Commodity Prices
WTI (Crude Oil)
Gold
CRB Index
51.21
1,222.15
226.10
Source: Bloomberg
Page 3