Pakistan’s trade health likely to deteriorate as virus spreads

Karachi: Pakistan’s struggling economy is expected to reel under virus pressure with trade health likely to deteriorate, an equity brokerage said on Friday, but it expressed hopes of significant support to external account sector from soft oil.

“The coronavirus outbreak is expected to affect industrial activity of various countries, including key trading partners for Pakistan,” BMA Capital said in a flash note. The argument was based on Pakistan’s dependence on its trading partners to run the economy.

“A large portion of Pakistan’s economy is driven by imported materials including most key sectors, such as textiles, automobile, energy, steels, pharmaceuticals, and consumers,” the BMA Capital said. “With quarantine efforts at full effect within Pakistan’s major trading partners, we can anticipate some decline in Pakistan’s trading activity in coming months.”

The brokerage data showed that the country mainly relies on six economies that are seen mostly hurt by the modern-day influenza. The country imported electronics and steel of $10.1 billion from China and exported yarn and rice worth $1.8 billion to the latter in the last fiscal year of 2018/19, depicting a trade deficit of $8.3 billion. With regards to South Korea, there was a trade deficit of $510 million involving exports of mineral oil and fabric and imports of metal and chemicals. With Japan, trade deficit amounted to $1.3 billion involving exports of yarn and textile and imports of vehicles and steel.

Pakistan enjoyed trade surplus of $221 million – with regards to Italy – that included exports of textile products and imports of machinery. There was a trade surplus of $218 million that comprised exports of textile, surgical and sports goods and imports of scrap and machinery with regards to Germany. In relation to France, trade was also in favour of Pakistan with exports worth $443 million of rice and textile products and imports of electronics and parts worth $401 million.

BMA Capital said lower oil prices are expected to bode well for Pakistan’s macroeconomic indicators. “The decline in oil prices resulting from coronavirus outbreak and recent disagreement between Saudi Arabia and Russia over supply cuts has the potential to become a boon for Pakistan’s economic landscape.”

During FY19, Pakistan imported $16 billion worth of oil, 31 percent of the country’s total import bills. “We estimate that for every $10/bbl decline in Arab Light’s spot price, Pakistan’s import bill can fall by $1.6 billion,” it said. “Lower oil prices also have the potential to reduce inflation levels on account of lower energy tariff and transportation costs. Consequently, a softer inflation outlook will likely expeditethe eventual monetary easing.”

The brokerage further sees a significant reduction in recreational spending, particularly at places where crowds gather, including restaurants and cinemas. “Moreover, as seen in other affected countries, families may restrict non-essential road travels. This fact, in addition to the temporary closure of schools and certain offices, has the potential to significantly curb domestic demand for petroleum products,” it said. “However, bulk purchasing of sanitising products such as tissues, soaps, hand sanitisers and disinfectants could be seen as in western countries.”