KARACHI – Driven primarily by healthy dollar inflows on the back of strong export performance and worker remittances, the country’s current account (C/A) balance has shown a $99 million surplus during the first nine months of the current financial year. Analysts, however, have warned against complacency, saying it was too early to celebrate the rare ‘good news’ at a time when incipient threats like soaring oil prices in the international market and a debilitating power crisis at home looms ever larger and will offset positive gains in the current account surplus.
According to the State Bank of Pakistan (SBP), the external accounts of cash-strapped Pakistan exhibited a surplus of $99 million during July-March FY11 against a deficit of $3.106 billion witnessed in the corresponding period last year. The recent surplus, the analyst believe, is mainly attributable to historic inflows of the greenback under the head of exports and worker remittances.
“The surplus is for two basic reasons namely the receipts under exports and worker remittances that have hit an all time high,” especially during last month (March), said Muzammil Aslam, an analyst at KASB Securities. An SBP spokesman also confirmed the ‘natural’ positive impact of the record inflows of dollars to the country in the face of home remittances and exports. According to the central bank, during the period under review the country’s exports grew by 25 percent or $3.597 billion in value terms to $17.945 billion against $14.348 billion of the corresponding months last year.
July-March FY11 also saw overseas Pakistanis remitting a record figure, $8.016 billion, registering an increase of $1.465 billion or 22.3 percent when compared with last year’s $6.551 billion. In monthly terms, statistics of the Federal Bureau of Statistics reveal, the two indicators present more remarkable accounts of the external sector as in March the country’s exports fetched an unprecedented $2.497 billion against $1.77 billion in the corresponding month of last year. This shows a growth of 41 percent or $72 million.
Also during March, the FBS recorded the home remittances at, what the analysts said, highest-ever level in the history of Pakistan. During last month the Pakistani compatriots sent back home $1.052 billion that depicted a jump of $289.16 million or 38 percent against $763.72 million remitted by overseas Pakistanis in March 2010. “The rupee appreciated (against the dollar) to Rs 84 on April 9,” commented Aslam. The analyst, however, warned that the “good news” was not permanent.
“This (surplus) is though a good news that emerged during last two years’, 2008-10, journey but is not permanent,” he said. The analyst expressed the concern that whereas global oil prices were staggering on the higher side Islamabad was yet to resolve the anti-growth power crisis. “The power and oil crises should be resolved immediately,” he noted. Aslam was also wary of price instability in the international cotton market saying even a slight dip in cotton rates will burst the bubble of record exports growth that, many of the economic observers believe, is a consequence of rising costs.
“It is too early to celebrate,” the analyst told the country’s economic mangers who expect a ‘tremendous’ growth in exports receipts this fiscal year that they project would see the exports and worker remittances hitting the historic $23 billion and $11 billion mark, respectively. Specially, the analysts are appreciative of the upward trend in exports earnings of the cash-strapped country where an acute energy crisis and a poor law and order situation could always be witnessed to increase the cost of production.
The improving current account balance helped the country’s external accounts posting a surplus of $ 1.6 billion during July-February FY11. “The improvement in the country’s external accounts is owed to contraction in the current account deficit,” said Second Quarterly Report on State of Pakistan’s Economy issued by the State Bank on April 8.
