Sakina Husain
The SBP reported exports amounting to $22. 8b during the period Jul-May11, registering a growth of about 27 per cent over the corresponding period last year. The main driver was the perfectly correlated 27 per cent growth in exports by the textiles sector, primarily benefiting from soaring cotton prices that touched a peak of Rs13, 500(KCA Spot Rate). However, the onslaught of the new financial year has brought with itself some relaxation, as prices are expected to fall below Rs7000 on account of a bumper cotton crop. If this decline of more than 40 per cent translates into export receipts, trade advantage reaped in the preceding fiscal year will be nullified. Thus, the current account may be less of a star performer this year, if everything else remains the same.
Another interesting mode of analysis is inspection of ongoing commodity price trends in countries where Pakistan makes sizeable exports. Interestingly, according to SBP data on export receipts by countries, Afghanistan stands out as the second largest buyer of goods from Pakistan as receipts amounting to $1.7b were realised during the period Jul-May 2011. The exported items include petrol and petroleum products, textiles, wheat, etc. An item-wise analyst prediction shows that price of crude oil is expected to show a bearish trend on account of further monetary tightening in China, indicative of an economic slowdown, which is also being experienced in the EU owing to the ongoing crisis. Thus, gains on the petroleum front will be unlikely. Further, Pakistan has produced a bumper crop of wheat in this season so it is unlikely that price of wheat will render any substantial gains to export receipts in the upcoming months.
The largest buyer is more predictable and hence less interesting. Pakistan’s exports to the USA amounted to $3.7b during Jul-May 2011, up by about 15 per cent YoY. Among the primary exports are once again textile products. However, an interesting development is the export of mangoes, for which development agencies have spent about $3.1m. Although the magnitude of export receipts realised may not make a significant contribution, but it will pave roads for the export of more horticulture products in the medium term.
Moving on, Pakistan’s exports to the EU amounted to $5.4b during the period under discussion. In the aftermath of the floods, trade concessions were sought by Pakistani businessmen on 75 items which constitute about 27 per cent of Pakistani export goods. However, India and Bangladesh at WTO vetoed the concessions post approval by the EU Parliament. According to a report by SBP, even if these concessions are granted, their benefit will not be of great proportions. This is because Pakistani exports constitute only about three per cent of all EU Imports. However, exporters are much awaiting benefits of 100 million euros that they will gain if this deal finalises.
Another notable destination for Pakistani exports is China, where receipts amounted to about $1.5b during July-May11. Currently, China faces a severe drought in its two major rice-producing provinces and thus can be expected to take a toll on the global price of rice. On the other hand, bumper crops in Thailand and Vietnam may ensure that the price remains stable.
The current account and balance of payments surplus has heavily rested upon rising remittances and exports in the event of declining FDI levels in the preceding fiscal year. There is an urgent need for diversification and exploration of new avenues, given an inelastic import bill, to keep the balance of payment bill intact. If exogenous factors such as global price rises and remittances are heavily relied upon and celebrated, the economy would never realise the importance of a structural change.
After all, why cant one wish for inelastic exports to match inelastic imports?
The writer is a freelance journalist and economic researcher
