Export growth unlikely to be sustained in 2011-12: decline in cotton prices in international market

The export growth of over $24 billion is unlikely to be sustained during the current fiscal year, as there are clear indications of a decline in cotton prices in the international market, an official said. Around 70 per cent increase in exports was primarily due to price incentive, which may no longer be available to Pakistani exporters in the current fiscal year and consequently the pressure would be on external account.
Sources in Finance Ministry said that remittances and 28.70 per cent growth in exports was a blessing for the external account when external inflows had almost dried up. They said that situation on external side has worsened after May 2 incident which led to a strain in relationship with the US.
Pressure on current account could be from decline in exports on account of decline in per unit price of cotton and other commodities and because of increase in oil prices in the international market. It would widen the country's trade deficit as well as pressure on current account and foreign exchange reserves, sources added.
A considerable decline is anticipated in the gross official reserves in the next three years because of increasing trade gap and repayment to the International Monetary Fund (IMF) starting from this fiscal year. Sources added that projection of 5.3 per cent current account deficit in the budget strategy paper by 2013-14 was indicative of the considerable need for foreign exchange to finance the trade gap. Remittances would provide support towards financing the trade gap. However, foreign reserves would have to be used to bridge the gap as well.
Foreign aid inflows are expected to be less than budgeted in 2011-12 and outflows are likely to increase on account of lower exports, higher imports (on account of an increase in oil prices) and for debt servicing, an official said. The trade deficit rose to $15.587 billion - 1.08 per cent higher than 2009-10's $15.420 billion.