Daily Times

Foreign trade is growing, both imports are exports are rising, and Pakistan has posted a current account surplus. The central bank’s latest data for nine months — July-March FY 2011 — indicate, Pakistan posted a $ 99 million surplus, a tremendous achievement compared to the $ 3.106 billion deficit in the like period of FY 2010, the State Bank of Pakistan reported this week. The improvement in the external balances continues. The current account (CA) surplus was $ 347 million in the month of March 2011 against a deficit of $ 2.0 million in February 2011.

The country had recorded a current account deficit of $ 3.946 billion in FY 2010, while it was as wide as $ 9.261 billion in FY 2009. This current account improvement, analysts feel, is likely to bolster the Pakistani rupee against the dollar and other hard currencies. Last week’s performance of the rupee in the forex market affirms this view.

The week saw the rupee rise to an 11-month high against the greenback. However, the rupee’s future strength will depend on whether the export receipts and home remittances grow. The surplus in current account comes on the back of not only rising exports, but a record rise in remittances sent home by overseas Pakistanis, especially those working in the Gulf, Saudi Arabia, USA and UK. March saw $ 2.5 billion in export earnings, and $ 1.052 billion in the form of home remittances — both are a record for a single month. Part of the increase in inflow of remittances is attributed to the current turmoil in the Middle East-North Africa (MENA) region, as a result of which Pakistanis working in those countries are remitting home some of their savings.

The central bank also reports the trade balance inched up to a deficit of $ 11.217 billion over nine months to March compared to a hefty deficit of $ 11.035 billion in the like period of FY 2010.

The revised export target for FY 2011 is $ 24 billion. The first nine months till March FY 2011 have seen exports spurt to $ 17.8 billion, compared o $ 14.072 billion in the like period of FY 2010, on the back of rising commodity prices abroad. Pakistani textiles, which contribute 55.5 percent to overall export earnings, were the key contributor to these earnings.

The ongoing export surge of textiles was 30 percent plus on the back of rising unit prices. The spurt was internally caused by global shortage of raw cotton that followed the floods in Brazil and India’s ban on export of this raw material. During the nine-month period, textiles alone contributed $ 9.88 billion to the overall exports. The group’s growth in exports, in value terms, was shared by cotton yarn, cotton cloth, bed wear, knitwear and ready-to-wear garments.

Nonetheless, there was hardly any increase in the volume or quantum of export of the textile group. This particular element also adds the likely vulnerability of future exports and the earning capacity of textiles. In case the world’s cotton output increases and the prices of the raw material decline, the unit value of Pakistani exports of textile may come down too. The State Bank of Pakistan (SBP) has lowered the cotton output projections within Pakistan to 11.7 million bales, down from the original estimate of 14 million bales.

Imports in FY 2011 are projected at $ 39 billion. But the actual amount will be determined by movement of pries of imported oil, food and commodities.

The FY 2011 projection for home remittances is $ 11.0 billion against which the actual inflow of remittances in the first nine months is $ 8.016 billion. But the foreign direct investment is doing somewhat poorly. The inflow in the July-March FY 2011 is just $1.08 billion — down 28 percent compared to the like period of FY 2010 when it was $ 1.5 billion.

However, the foreign portfolio investment in Pakistan rose 229 percent with an inflow of $ 235 million, while the outflow was $ 182.6 million. The overall inflow was a bit down by 0.3 percent. What is the likely picture of foreign trade in the foreseeable future? There are positive as well as negative elements that will ultimately decide the outcome. Among the positive elements, Pakistani cement producers, for instance, hope they will be able to export 100,000 tons of cement to India within the next three months. Pakistan exported 320,000 tons of cement to India during July-February of FY 2011, down 24 percent compared to the like period of FY 2010. Exports to India are projected to range between 500,000-800,000 tons in the next two years.

In the negative basket is the fact that food imports, particularly those of cooking oil, are likely to put pressure on the external balances. Cooking oil imports are likely to rise 5.0 percent to 2.16 million tons in FY 2012. Cooking oil consumption is expected to rise 8.0 percent to 3.53 million tons, of which 75 percent will be imported. Out of the total, palm oil imports alone will be 81 percent.

Although the present state of external balances is good for the time being, but the global oil and food prices and export earnings of the textile group will really impact them in one way or the other during the months to come.

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