Deficit as expected

No matter how one looks at it, detailed trade data for the first seven months of current fiscal year, reveal the same bitter-sweet-bitter story.
Bitter because its still suffering from weak form of exports, sweet because the trade gap, nevertheless, is getting better and bitter again because it unveils the age-old structural shortcomings of Pakistans economy.
Exports of raw cotton and cotton yarn cumulatively fell to 75416 metric tons in January from an average 95765 MT in the second quarter FY10. But seven-month numbers still show a dismal picture: sales of textile input jumped some 42 percent, whereas that of finished goods increased only by 8-10 percent.
Thankfully, though, trade imbalance managed to fall about 22 percent between Jul-Jan FY10, despite a similar increase in Januarys trade gap over December 2009 on a month-on-month basis.
From what it seems, this recovery in balance-of-trade would continue thanks to stabilising global crude oil prices and persistent increase in rice exports - the biggest selling good from Pakistan that holds a weight of about 11 percent in total overseas sales.
In the wake of a bumper domestic crop and rising international demand, rice exporters have been very active this year - selling $1.16 billion worth of basmati and non-basmati rice during the seven-month period. These trends suggest that Pakistan is well on its way to meet and perhaps exceed its rice export targets for the current fiscal year.
Yet, as long as structural issues persist, there is little hope for the future. The weakening rupee, which is supposed to benefit the economy by making exports competitive and imports expensive, hasn been able to cast its magical spell.
Being a net importer with inelastic foreign purchases - such as oil and machineries - the depreciating value of rupee has been hitting hard on the trade gap, threatening to create a downward spiral for the currency.
Memory from elementary school reminds one that economies that invest in capital goods are able to achieve stability in the long run. Sadly, however, import numbers continue to reveal an emphasis on consumption goods as opposed to equipments and other capital enhancing machineries.
Policy focus on strengthening the large scale manufacturing capacity of the country is essential for long-term economic stability, without which, trade imbalances will continue to haunt the countrys financial managers from time to time.