External current account has shown a surplus after three months in September. Higher current transfers and a lower import bill despite a slight fall in exports vis-à-vis previous month are primarily responsible for the green bottom line in September.
But, is it a trend? Not likely! Ironically, the floods, which are going to worsen the external account balance this fiscal year, were responsible for better numbers in the last month.
Though detailed trade numbers are not yet public, lower oil imports - mainly of furnace oil and diesel imported in August but billed in September - owing to higher hydel generation on the back of floods can be attributed to last months surplus.
This partially substituted the expensive thermal power generation for the short-term. Moreover, the closure of two thermal power plants and higher oil imports in July augment the assumption of lower oil bill for September.
Nonetheless, this may cut the import bill by $200-300 million, while the overall import bill is lowered by $549 million as compared to the previous month. Slowdown in economic activities, again due to the floods, may have resulted in lower imports of cars and luxury items, which explains the rest of the fall.
Inflows under the head of current transfers, which comprise of remittances and other flows, improved by 24 percent in September on month-on-month basis. This again, is attributed to donors and expatriates higher transmission of money owing to the floods and Eid.
Hence, the floods shaped the external account picture for the first quarter. Mind you, last year depicted a much better picture vis-à-vis previous years and analysts are expecting some worsening in the external account for the ongoing year.
Fears of higher global commodity prices, owing to excessive quantitative easing in the developed world and its spillover on asset demand in the emerging world, ongoing currency war and supply shortages owing to natural calamity in Russia and Pakistan could increase the import bill in dollar terms.
Then the floods are likely to chip away food exports whereas additional cotton imports may tilt the trade balance in the favour of imports. Thus the average current account balance may hover around $1,500 million for the coming three quarters versus $545 million for the first quarter.
Last but not the least, any delay or shortfall in CSF inflows, may push the full-year current account deficit further away from the target. Talk about the balancing act!