Current account posts $542m surplus

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The country’s current account balance, after a gap of seven long years, has posted a surplus of $542 million during the recently concluded financial year 2010-11.
This surplus came after seven years during which the crises-hit country had persistently been seeing its current account balance falling in the red zone with fiscal year 2009-10 alone registering a deficit of $3.946 billion.
The policy makers and economic managers in Islamabad breathed a sigh of relief with their balance of payment woes fading for the time being.
The analysts attribute the surplus to the trilateral positive the country witnessed in its external accounts augmented strongly by the record dollar inflows on account of exports, remittances and military aid from the United States under the Coalition Support Fund (CFS).
“The improvement was primarily on account of positive commodity price shock which resulted in reduction of trade balance to $10.1 billion as against $11.5 billion in FY10. There was a 26 per cent jump in worker remittances to a record high of $11.2 billion and the disbursement of $743 million under Coalition Support Fund,” said Nauman Khan, an analyst at Topline Securities. According to State Bank of Pakistan (SBP) data, the country’s trade balance during FY11 remained in the green zone as the deficit narrowed down by 11.7 per cent or $1.361 billion to $10.175 billion compared to $11.536 billion of FY10.
During the year under review, exports from Pakistan stood at $25.462 billion while the imports were calculated at $35.637 billion. The volume of exports and imports during the FY10 was $19.673 billion and 31.209 billion, respectively, the SBP figures show. The Pakistanis working overseas also remitted record money during the year as according to the central bank statistics, $11.201 billion were sent back home during FY11 compared to $8.906 billion the preceding year. This depicts a historic increase of 26 per cent or $2.295 billion. As for the disbursements under CSF, Pakistan’s non-Nato allies in Washington paid only $743 million of the $1.3 billion the Americans had pledged for FY 11. The reimbursement of these half-paid war expenditures, however, gave a notable boost to the country’s current account with the foreign exchange reserves also crossing the record level of $18 billion during the year.
The impact of the recent $800 million cut in the $3 billion Fund by Washington, in view of the ongoing diplomatic strain in its ties with Islamabad, is yet to bee seen during the current financial year. Analysts, however, are upbeat about the increased dollar reserves held by Islamabad to offset the repercussions of such negatives.
“Record high cotton prices boosted the country’s export by a significant 29 per cent to touch record high levels of $25.5 billion versus $19.7 billion last year. Despite firm oil prices of above $90 per barrel import bill jumped by only 14 per cent to $35.6 billion,” elaborated Khan.
The analyst said the subdued growth in the import bill could be attributed to floods in the first half of FY11 and the lingering circular debts in the second half which has deterred Oil Marketing Companies from importing oil. “For the month of June alone, the current account showed a noteworthy improvement to $501 million as against a deficit of $527 million last month,” the analyst observed. He said the improvement was primarily on account of 18 per cent rise in exports and 23 per cent rise in current transfers with 5 percent rise in the worker remittances.
Some economic observers, however, are concerned that these surpluses in the country’s current account are not reflective of the economic situation currently prevailing in the country. They argue that current account should witness a deficit owing primarily to increased oil imports.
“This trend is not reflecting the economic downturn in the country,” said Farhan Mahmood of InvestCap.