Impact on economy & sectors

KARACHI: The PkR fortune has taken a U-turn in recent times as it was the best performing Asian currency for the week ended Mar 07’14. During the week, the PkR appreciated by 1.7% against the US$, while in today’s session it has broken the big figure of PkR101 to trade around PkR100.90. Overall, the PkR has recovered by 7% from its all-time low of PkR110.1. Though we continue to pursue clarity on the changing PkR dynamics, our initial assessment suggests that improved forex reserves (up US$1.1bn in Feb’14) is reflecting positively on PkR - US$ parity. Improved flows from bi/multilateral sources (including CSF), normalization of trade cycle and higher remittances flow are likely to be driving factors for improved reserves.

In today’s Vantage Point, we assess the impact of improved PkR - US$ parity on the country’s economy and some of the major listed sector.

Impact on the economy

The improved PkR - US$ parity is likely to moderate the future inflation expectation (Shajar FY14 average CPI expectation of 9%), which could potentially be a major swing factor in the coming few monetary policy statements (our base case stance of ‘Status Quo’ on the DR till Jun’14). The improved PkR - US$ is also likely to reflect positively on Pakistan’s debt profile with external debt account for xx% of the total debt. On the flip side, the improved PkR - US$ parity may adversely affect the country’s export competitiveness. Pakistan’s exports are already facing tough competition from other regional players like India and Bangladesh.

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Impact on Sectors


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Sector              Impact                Assessment


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O&G Explorer        Negative              Dollar denominated oil


                                          and gas prices leading


                                          to revenue attrition


Banks               Negative to Neutral   Reduced non funded


                                          income from foreign


                                          currency transaction


Oil Marketing Co.   Positive              Gain on their foreign


 & Refineries                             currency payable to


                                          compensate for


                                          reduced margins


                                          in PkR terms


Power               Negative              Dollar index returns


Cement              Neutral to Positive   Reduced export realized


                                          value more than


                                          compensate by


                                          saving on coal cost


Fertilizer          Variant               Reduced primary margins


                                          in PkR terms. However,


                                          exchange gains on foreign


                                          debt component for


                                          companies like EFERT


Textile             Negative              Lower net realized


                                          export receipts


Automobile          Neutral to Positive   Improved margins on


                                          the back of reduced


                                          imported cost component.


                                          However, partially diluted


                                          by influx of imported vehicles


Fixed Line Telecom  Negative              Lower ICH revenue


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