Economy: Augmenting Principal Payments a Threat for PKR

The country’s foreign exchange reserves position have witnessed severe deterioration over past eleven months and have shrunk to USD15.0bn (import cover of 4.6 months only)     Current account balance may witness some reprieve on the back of decline in international crude oil price due to recessionary pressures reemerging in the developed countries    As per our estimates every USD5/barrel decline in crude oil price will result in a benefit of USD65mn a month. At prevailing Arab Light price of USD92/barrel this amounts to a saving of approximately USD170mn a month    A caveat stems from higher import of fuel oil as the government may take populist measure of increasing electricity supply by increasing generation through furnace oil based power plants     Pakistan has to repay approximately USD475mn during 1QFY13.Combining this amount with principal repayment to multilateral institutions, Paris club and other institutions, the total outlay during 1QFY13 is estimated to be in the vicinity of USD850mn to USD900mn     Under this backdrop, we opine that PKR could depreciate by 8% during FY13, over and above its average depreciation rate of 6.9% witnessed during last two decades

Economy: Augmenting Principal Payments a Threat for PKR