Positive developments in the external sector

Exports and home remittances during the month of March, 2011 have surpassed even the most optimistic assumptions. According to the latest data released by the Federal Bureau of Statistics, exports surged by as much as 41.07 percent to reach a record level of dollar 2.497 billion in March, 2011 as against dollar 1.77 billion in the corresponding month of last year, while imports grew by only 3.95 percent from dollar 3.287 billion to dollar 3.417 billion in the same period.
As a result, the trade deficit of the country narrowed to dollar 920 million from dollar 1.517 billion in March, 2010. A high growth of 26.49 percent in exports was also witnessed in the first nine months (July-March, 2011) of the current fiscal year as these went up to dollar 17.799 billion as compared to dollar 14.072 billion in the same period last year. However, as imports rose by a somewhat higher margin of dollar 3.909 billion in nominal terms (15.57 percent) from dollar 25.107 billion to dollar 29.016 billion, the trade deficit of the country rose slightly by 1.65 percent from dollar 11.036 billion to dollar 11.217 billion. Home remittances during March, 2011 also reached the highest-ever level in the history of Pakistan, crossing the figure of dollar 1 billion in a month.
These amounted to dollar 1.052 billion during March 2011 as against dollar 763.72 million in the same month last year, indicating a tremendous jump of dollar 289.16 million or almost 38 percent. During the first nine months of the current fiscal year (July-March, 2011), Pakistani workers remitted dollar 8.017 billion as compared to dollar 6.551 billion in the same period last year, showing an increase of dollar 1.465 billion or 22.37 percent. Country-wise, remittances from UAE increased by dollar 380 million to dollar 1.859 billion, from Saudi Arabia by dollar 480 million to dollar 1.822 billion, from US by dollar 174 million to dollar 1.491 billion, from GCC countries by dollar 16 million to dollar 948 million, from UK by dollar 218 million to dollar 879 million and from the European Union by dollar 67 million to dollar 256 million.
A significant improvement in the level of exports and home remittances during the current year, particularly their highly encouraging trend in the latest month, is indeed a very positive development for the economy of the country. The government had projected an export target of dollar 21.22 billion for 2010-11, but looking at the actual data so far, one could easily anticipate the level of exports at around dollar 23 billion during the year, which would be a tremendous improvement over last year's export proceeds of dollar 19.3 billion. Noteworthy is the fact that the jump in exports was despite the acute energy shortage and rise in its prices and the worsening law and order situation in the country. Home remittances during FY11 could also be around dollar 11 billion, which would compare very favourably with the target of dollar 9 billion set for the year and actual receipts of dollar 8.91 billion through this source during 2009-10.
A much higher flow of home remittances was attributable to the closing of the gap between official and unofficial rates of exchange of the rupee and the enhanced level of confidence of overseas Pakistanis in banking channels. Since exports and home remittances are the major components on the receipt side of the balance of payments, the current account of the country is likely to show a remarkable improvement during the current year.
The latest quarterly report of the State Bank had projected a current account deficit of 1.0-1.5 percent of GDP during 2010-11, as against the annual plan target of 3.4 percent, but this projection was made when the March, 2011 data was not yet available, suggesting that improvement in the current account could even be greater than estimated earlier. It goes without saying that such a healthy turnaround in the current account would be very helpful in maintaining the foreign exchange reserves of the country at a comfortable level, stabilising the exchange rate of the rupee and reducing the need to borrow from outside sources, including the IMF.
However, while welcoming such an encouraging development, there is a need to analyse the factors responsible for such an improvement. The trade data indicate that increase in commodity prices, especially of cotton and its products and rice, was mainly responsible for the rise in exports. As such, export receipts of the country could decline if prices in the international market would tend to ease in the coming months. On the other hand, there are fears of a spike in oil prices in the international market due to obvious reasons, which would increase the oil import bill.
There are also apprehensions about the consistent increase in home remittances due to the uncertainty of jobs in the politically disturbed oil-rich Middle Eastern countries. Some of the overseas Pakistanis may also be sending their remittances to their parent country due to the fear that their savings may be endangered in countries where they are employed. Although all of us would wish that such negative factors do not come into play to disturb the present healthy trend in the external sector, yet it would be prudent for the relevant authorities of the country to be vigilant about the unfolding situation in order to take appropriate policy measures if and when required.