Uncle Sam gives the dough, Maybe now the cash will flow

After seeing a whole year of deficits the country’s current account balance set in the green zone registering a surplus of $ 919 million during the first two months of FY13, thanks to the long-denied war reimbursements made by the United States on account of Coalition Support Fund (CSF) early last month. In percentage terms, the surplus is 2.2 percent of the country’s gross domestic product (GDP) accounting for $ 41.116 billion.
Syed Wasimuddin, the chief spokesman of the State Bank, attributed the rare surplus to inflows under coalition support. “(The surplus is) due to the CSF money”, he told Pakistan Today.
Pakistan’s non-Nato allies in Washington had released to Islamabad on the first of last month $1.118 billion under the CSF after a months-long strain in bilateral ties was eased through an on-and-off process of negotiations between the two countries on civilian, military and intelligence level. Economic observers also seconded the official version of the SBP spokesman saying the surplus was due to US funds transfer under the military and civilian heads of CSF and Kerry Lugar Act (KLA), respectively.
“Mainly that CSF and Kerry Lugar flow from the US,” said Khurram Schehzad, a senior analyst. The receipts under KLA have been meager with Washington reported to have transferred only Rs 20.356 billion during FY12 against a projected receipt of Rs 34.164 billion. Under the KLA, Pakistan has the US’s word for receiving a civilian aid of $ 7.5 billion till 2014, $ 1.5 billion per annum. However, the funds transfer under CSF augured well for the dollar-hungry Pakistan which in FY12 had braved a current account deficit of over $ 4 billion, pushing the economic managers closer once again to a fresh IMF bailout package.
The central bank on Tuesday said during July-Aug FY13 the country’s current account stood at $ 919 million year-on-year compared to a deficit of $261 million during the corresponding months of FY12. A monthly account shows that against a $ 321 million deficit in July the C/A balance ended up in the green zone by witnessing a $1.240 billion surplus in August, when the CSF inflows landed in.
With the country’s trade balance remaining almost flat by widening to a nominal $2.41 billion against last year’s $ 2.52 billion, the ever-increasing worker remittances might be a permanent attributable factor for the surplus. During the months under review, the central bank counted at $ 2.464 billion the remittances Pakistanis working abroad sent back home. This amount is up by $ 57 million than$ 2.407 billion overseas Pakistanis had remitted in the review months last year.
The inflow of remittances during July and August was recorded at an impressive $1.205 billion and $ 1.259 billion, respectively. It means the country on average receives over a billion dollars every month from Pakistani compatriots.
A break up of trade deficit depicts that during the two months the country exported goods worth $ 4.061 billion compared to $ 4.257 billion of July-Aug of the last fiscal. Compared with last year’s $6.785 billion, the imports remained subdued at $ 6.471 billion.
The disbursements from the foreign financers, another noteworthy indicator on the current account balance list, set in the red zone and remained confined to long-term project loans totaling at $ 81 million. Last year, the foreign disbursements under the same head had amounted to $ 172 million.
The current account surplus also reflected well on the country’s booming stock market where, despite investors’ concern for an uncertain law and order situation in the protests-hit city, the KSE 100-share index ended higher and gained 118.5 points with trading volumes peaking to 129 million shares against Monday’s 98 million only.
According to Ahsen Mehanti, a senior equity analyst and director at Arif Habib Securities, the surplus current account balance of $ 1.2 billion during August ‘12 along with factors like the new EU trade waiver on Pakistan exports, easing concerns on circular debt issue and speculations ahead of implementation of International Clearing House Mechanism for telecom sector played a catalyst role in bullish sentiments at the KSE on Tuesday.