Contrary to what many economy watchers were expecting, the countrys current account provided a much-needed breathing space in the four months ending October.
Central bank data shows that the trade balance narrowed by 5 percent year-on-year in the Jul-Oct period as growth in exports (13 percent YoY) outpaced that of imports (6 percent YoY) despite the rise in food and fuel prices.
"But, in a way, slow growth in import is a reflection of the weak economy at home," says Sayem Ali, an economist at Standard Chartered Bank. This means if the economy picks up (miraculously), so will imports - despite the tight monetary policy.
Ordinarily, tight money supply tends to check import demand. But these aren ordinary times. In the post-flood scenario, where reconstruction activities are expected to increase the imports demand for diesel, iron and steel, the impact of tighter monetary policy might not be as effective as desired.
Still, thanks to higher remittances, which Sayem expects to grow by 12 percent this year, the full-year current account balance is seen around 3 percent of the GDP by the SCB economist - a number that is on the lower side of the central banks forecast of 3-4 percent of the total output.
Another remote silver lining is the regional tightening, which might just result in demand destruction and thereby, hopefully, contain the unbridled rise of global food and fuel prices currently being stoked by cheap money supply in the West.
But to say that Pakistans narrowing external account is a sign that safer shores lie ahead, would be a needless self-congratulation partly arising from the higher base affect; that, it is experiencing a brief interlude of safety would be a more appropriate description.
Come FY12, and the vulnerabilities might begin to expose themselves. Structural issues in export-oriented industries amidst other infrastructural woes like the power and gas shortages, rising cost of business and so forth continue to present a challenge. Then, of course, the failure to roll out fiscal reforms can potentially limit or otherwise slowdown the foreign aid and loan inflows, as many foreign allies aptly complain of the need to raise revenues within the country before revenues of foreign countries citizens could be doled out. Include in this scenario, the IMFs debt servicing, and the picture will be anything but smooth in FY12.
Its no wonder, therefore, that the central bank cautioned in its annual policy statement that financing even a moderate increase in the current account deficit may prove stressful for the economy, with rising pressures on the countrys foreign exchange reserves and exchange rate.