Current account: On the bright side?

Finally, its that time of the month, when Pakistans economic managers can have their feel good moment, while the politicians brag and boast of their performance. And why shouldn they?
The latest external account numbers released by the central bank confirm the notion that Pakistans balance-of-payment position is in safe waters - $99 million to be precise, for the first nine months of current fiscal year; which by the way is also the best nine-month performance since FY05.
Even month-on-month changes are confidence boosters. SBP data show that trade balance in March dropped about 11 percent over February, whereas remittances also jumped 25 percent month-on-month.
A closer look at the trade balance isn really disappointing either. Although, the SBP hasn released its detailed trade numbers as yet, that released by the FBS does provide a clue.
Share of textile exports dipped to 52 percent of total overseas sales in the quarter ending March, down from an average 57 percent in the first two quarters. That - despite the fact that textile exports in the third quarter grew 15 percent over the average overseas sales in the first two quarters - shows that perhaps diversification is slowly taking place.
Within the textile segment too, there have been some positive developments. According to FBS data, nine-month sales saw a decline in the quantity sold of the low end items, whereas that of value added items saw decent increases. (See table)
On aggregate basis, however, both low end and value added textile items saw substantial increases - thanks to soaring commodity prices in international markets. But just as rising commodity prices also helped fatten the food export bill, it also increased the cost of overseas purchases.
With global oil prices eyeing the pre-crisis levels, the cost of oil imports rose 11 percent in the first nine months, offsetting the 5 percent decline in the quantity of oil purchased during the period. The double-hit combo of higher quantity and higher prices also stoked the food import bill during the period.
So while higher rising commodity prices may be boon for the exports, its equally a bane for the countrys imports - especially considering that Pakistans imports are largely inelastic. Oil imports make up nearly one-third of the total import bill, one that is expected to increase as summer approaches and the need to burn more fuel for power generation takes its toll.
As long as remittances are increasing, one might feel cushioned from the raging oil bull. But just imagine if the remittance inflows stop, or taper off. Already, certain official quarters are expressing their fears that remittances might fast become Pakistans Dutch Disease. If these fears materialise, then the country better up the ante on diversification of exports as well as of markets.

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Segment-wise performance of textile exports

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                       YoY Change in 9MFY11

%                  Quantity  Price*   Total

                                      value

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Raw Cotton           -43%     104%      22%

Cotton Yarn          -22%      78%      41%

Cotton Cloth          13%      17%      32%

Knitwear              24%       7%      33%

Bed wear               2%      23%      25%

Towels                15%       3%      21%

Readymade garments    23%       8%      33%

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* Average price arrived by: total value/qty sold

Source: FBS