The current account has lately become a sweet treat for Pakistans vexed economic managers. For the third time in FY11, the month-to-date current account reported a surplus with the July-April FY11 surplus clocking in at a hefty $748 million. In fact, Aprils individual current account surplus - $716 million - is the highest monthly balance reported this fiscal year.
A closer look reveals that a decline in the month-on-month import bill of roughly 14 percent versus March 2011 has driven the astounding increase in current account surplus in April 2011.
Despite average oil prices being higher in April vis-à-vis March, the value of imports of the petroleum group fell by 23 percent month-on-month in April 2011. The slump in last months oil import bill is attributable to a decline in the quantity imported, as also confirmed by FBS data, which shows a volume-based contraction of over 30 percent in petroleum products import.
Strained by the circular debt, which ballooned considerably in April this year, the liquidity crunch might have constrained the import financing, hence possibly affecting the quantity imported.
However, this is only a short-run phenomenon because the governments efforts to reduce the circular debt to feasible levels will pump back imports in the next few months. Besides, though helping the monthly current account improve, this factor reflects inadequacies in the power sector that bear on the industrys performance.
The decline in oil imports might also be due to differing shipment timings over the months that may marginally explain the differences in recorded monthly import bills.
Besides oil, the value of raw cotton imports also dropped month-on-month in April 2011 by over 60 percent according to SBPs detailed accounts. FBS data help trace this to the volumetric decline of around 60 percent in raw cotton imports, likely due to the availability of ample stocks of the commodity with local industries.
A year-on-year comparison of 10MFY11 depicts improved current account figures, led mainly by an increase in exports as well as workers remittances. The surge in prices of Pakistans exportable commodities such as rice and cotton, and the boost to workers remittances brought about since the initiation of the Pakistan Remittance Scheme (PRI) can explain the year-on-year gains on these fronts.
Yet, though one may want to cheer for the positives on the current account for the July-April FY11 period, the sustainability of such an improvement is rather dicey.
With commodity prices having been struck by the bears, exports may not soar as high as observed in the recent past.
Similarly, despite sliding marginally this month, oil prices are still fairly high, and are expected to linger on the higher side in the days to come. Besides, expectations of recovery in economic growth also bring the possibility of greater oil imports in the coming fiscal year.
Further, the current account has been helped largely by remittance inflows, raising the question of how green would the remittance-dependent current account remain if this category tapers off.
Adding to the ado, currently tense Pak-US relations mean the already-shriveled CSF payments are not likely to become the saving grace for the future current account either.
Hence, rather than circumstantial triggers, the key to sustainable improvement are more sustainable efforts such as export diversification.
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Pakistans current account balance - key items
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($ mn) Jul-Apr FY11 chg Y/Y Apr FY11 chg M/M
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Current account balance 748 NA 716 211%
Goods: exports 20,526 27% 2,590 3%
Goods: imports 28,811 13% 2,826 -14%
Trade balance (8,285) -11% (236) -69%
Workers remittances 9,046 24% 1,030 -2%
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Source: SBP