The commodity boom of FY11 is long gone and growth in quantity of exports has stagnated in FY12 under the specter of the energy crisis. Economic Survey 2011-12 reports that the countrys exports have stagnated at $20.5 billion in the July-April period in the outgoing fiscal, compared to a similar tally of $20.46 billion for the corresponding period last year.
Meanwhile, the survey notes that higher oil prices and imports of fertiliser have driven the import bill to $33.1 billion in 10MFY12, higher by almost 15 percent compared to the first ten months of the previous fiscal.
The ensuing widening of the current account deficit could be problematic going forward if oil prices end 2012 at higher levels than the beginning of the year. Fertiliser imports may not have as significant an impact given the large inventories already stocked with local producers.
On the bright side, the countrys international trade links have continued to diversify. "During 2005-06, 47.2 percent of the countrys exports were concentrated in five markets (USA, UK, Germany, Hong Kong and UAE)", notes the Finance Ministry, adding that this concentration has eased to 35.7 percent. Thanks to the Strategic Trade Policy Framework, Pakistans exports to China, Afghanistan and Bangladesh have all increased.
Realising the importance of support to the external sector through the inward flow of remittances from abroad, "MOUs have been signed with a number of labor importing countries such as Malaysia, Kuwait and Qatar", it reports.
While the Economic Survey reports that foreign exchange reserves stood $17 billion at end-April in FY11, which is only marginally higher than the tally of $16.5 billion at the same time this year, it has not noted that reserves had shot up to $18.2 billion by the end of FY11. This year the countrys total foreign exchange reserves have slid further down to $16 billion, as of May 25, according to data released by SBP.
After a recent interview of the SBP Governor was taken negatively by the currency market, the central bank has issued a clarification stating that, "we face no risk in being able to make next years IMF payments from our adequate reserves" and that a fall in projected reserves will be offset by higher remittances to the country.
But, despite the fact that the local currency has "depreciated by 3.4 percent during July-April 2011-12" the countrys exports have not enjoyed higher competitiveness to be able to post a significant increase. The apparent weakness on the external front may once again eclipse other promising signs such as lower than targeted inflation and improving domestic consumption, in months ahead.
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