Long wait comes to an end: Current account, no more a deficit story

By Faseeh Mangi

Published: July 19, 2011

Data shows a surplus after seven years on the back of record exports and remittances. DESIGN: SAMAD SIDDIQUI

KARACHI:  The current account posted a surplus after a long wait of seven years in financial year 2011 on the back of record exports and remittances.

“The improvement was primarily on account of positive commodity price shock which culminated in a trade deficit reducing to $10.1 billion against $11.5 billion in the preceding year,” said Topline Securities analyst Nauman Khan.
Current account, the difference between a country’s total exports and imports of goods, services and transfers, switched to a surplus of $542 million from a deficit of $3.9 billion in fiscal 2010, according to data released by the State Bank of Pakistan (SBP) on Monday.
Coalition support fund inflows of $743 million also supported the surplus current account, said Khan.
The pace of exports of goods and services left imports behind as they grew 29 per cent to $25.5 billion during the year from $19.7 billion a year before, mostly due to a rise in cotton prices in the world market. Cotton prices make a major impact on the country’s exports as the textile sector contributes almost half of the entire exports.
Despite oil prices standing firm above $90 per barrel, import bill jumped less than market expectation by 14% to $35.6 billion.
The subdued growth in the import bill can be attributed to a slowdown in operations caused by the floods in the first six months of fiscal 2011 and the circular debt that hit oil marketing companies in the second half of the year, added Khan.
Remittances crossed the $11 billion mark for the first time in the country’s history to stand at $11.2 billion during the year, an impressive growth of 26 per cent on a yearly basis. The target for remittances in the annual plan for fiscal 2011 was around $9 billion.
Giving one of the reasons for the sharp increase in remittances, the central bank said a joint move called Pakistan Remittance Initiative by SBP, the Ministry of Finance and the Ministry of Overseas Pakistanis had facilitated the flow of remittances into the country through formal channels.
For June alone, current account showed a noteworthy surplus of $501 million against a deficit of $527 million in the previous month. The improvement was primarily on account of 18% rise in exports and 23% rise in current transfers with 5% rise in worker remittances, said Khan.
Trend not to continue
The performance made in the year ended June 2011 may not be repeated in the coming years, said Khan.
Rising international fuel and falling cotton prices are being viewed as the potential threat to the country’s external accounts.
Moreover, the coalition support fund (CSF) is also in the doldrums as Washington has suspended $800 million in military aid to Pakistan, of which about $300 million was the coalition support fund.