Daily Times

We face a difficult business situation. Our trade deficit is narrowing as exports rise and imports decline. But the question is: how long will this good picture continue?

It is the gut issue because prices of commodities and petroleum, oil and lubricants (POL), which Pakistan imports, are rising. On the other hand, with other countries having larger cotton output, the unit prices of Pakistani textile exports have begun to decline. Even some major orders have been cancelled, the industry reports.

So far the 10-month cumulative July-April period of FY-2011 saw the trade deficit narrow just 1.94 percent to $ 12.109 billion, compared to $ 12.349 billion in the like period of FY-2010.

This period saw exports rise 22.78 percent to $ 20.18 billion — up from $ 15.773 billion in the same period last year. The official export target for FY-2011 is $ 21.129 billion, as against the actual exports of $ 19.290 billion last year. The exports rose this year on the back of higher cotton prices abroad, which led to rising unit prices of textile products.

Our textile exports, on 75 tariff lines, worth $ 1.03 billion, are expected to receive a one-time concession for duty-free import into the European Union (EU) as assistance for Pakistan’s massive flood damage of last summer, the EU Parliament has decided. It awaits approval by the World Trade Organisation (WTO). At the same time, rice exports projected at $ 2.3 billion also helped boost exports. The present official and business projections are that exports may rise to $ 24 billion by end-June when the current fiscal year closes.

Pakistani imports rose 14.73 percent to $ 32.263 billion during the first 10 months of FY-2011, up from $ 28.123 billion in the like period of last year. The official projection for imports for the whole of FY-2011 is $ 31.7 billion — or six percent higher than last year’s $ 29.9 billion. The FY-2011 annual target has been achieved in the first 10 months. Higher prices of POL products pushed the import bill. Imported food, including cooking oil import of 2.16 million tonnes in FY-2012 will cost more than $ 2 billion.

The oil situation is already worrying Islamabad as energy needs are to be met while containing forex spending. Kuwait reportedly agreed this week to provide Pakistan 0.2 million tonnes of diesel monthly on two months’ credit for an “indefinite period”. Kuwait agreed to this arrangement during the recent visit by President Asif Ali Zardari. Kuwait will also provide 25,000 tonnes of aviation fuel and 0.3 million tonnes of liquefied petroleum gas (LPG) on deferred payment basis. Kuwait has agreed to maintain the premium on diesel for a further six months. Pakistan consumes 0.4 million tonnes of oil daily. Its domestic output is 12 percent of demand. Pakistan’s oil imports in July-March period of FY-2011 were $ 8.088 billion, up 10 percent from $ 7.344 billion in the like period of FY-2010.

Larger exports and higher inflow of home remittances has led to a $ 748 million surplus in the current account for July-March, FY-2011, compared to a deficit of $ 3.456 billion in the like period of last year, the State Bank of Pakistan (SBP) says. The surplus is likely to improve by end-June.

The home remittances sent by Overseas Pakistanis, in 10 months to April, rose to a record $ 9.046 billion — 23.8 percent higher compared to the same period last year. The increase was principally from the Gulf and the Middle East. Remittances from the US, UK and EU were also up during this period.

Our central bank, the SBP, reports that the country’s foreign exchange reserves were $ 17.11 billion on the back of the CA surplus and higher remittances, on April 30. As a consequence, the exchange rate remains largely stable. The total forex reserves include $ 3.4 billion with the commercial banks. Out of the remaining $ 13.7 billion, nearly $ 9.0 billion were borrowed from the IMF under a Stand-By Arrangement (SBA), as a backup reserve.

While exports may not spurt as much as they are now due to the projected reduced unit prices for textiles, the oil and food imports will continue pressuring our external balances. Pakistan’s foreign business and trading partners will have to watch the situation closely. However, the normal import flows will have to be maintained.

The writer is an Islamabad-based journalist and former Director General of APP