ANALYSIS: Exports up, but can face strains —Muhammad Aftab - Monday, February 28, 2011

Source : http://dailytimes.com.pk/default.asp?page=2011\02\28\story_28-2-2011_pg3_6

Increase in prices of exported products, including textiles and rice, plus rising home remittances sent by overseas Pakistanis and inflow of the Coalition Support Funds to fight terrorism, have improved the current account. It saw a $ 26 million surplus during the first half

In spite of the overall business slowdown, Pakistani exports have recorded an impressive growth during the seven months to January 2011. But the ongoing (read spreading) political turmoil in the Middle East, Gulf and Africa can inflict substantial strains.

Pakistani exports rose 22.66 percent to a total of $ 13.227 billion during July-January period of the current fiscal 2011, the Federal Bureau of Statistics reported. This compares very favourably with exports of $ 10.784 billion in the like period of FY-2010.

Textiles, the country’s biggest industry, chiefly led the boost as unit prices for Pakistani products rose in the country’s traditional markets abroad. Textiles alone recorded a 25.88 percent growth. But other products also did well in contributing to the surge. Export of leather products, for instance, rose 17.22 percent, with a total sale of $ 330.6 million, up from $ 282 million in the like period of last year.

Exports of textiles during the seven-month period were $ 7.44 billion — up from $ 5.92 billion in the like period of FY 2010. Exports of cotton, cotton yarn, and cotton cloth rose too.

Some of the key products that contributed to exports included cotton, both carded and combed, which was up 60 percent. Art silk and synthetic textiles were up 59.43 percent, yarn, other than cotton yarn, was up 45 percent, made-up products rose 18.8 percent, textile materials 36.6 percent, ready-to-wear garments 33 percent, knitwear 25 percent, and bedwear 16 percent.

An analysis based on the State Bank of Pakistan (SBP) data indicates that during the first half of FY 2011 export earnings of textiles totalled $ 6.28 billion — a year-over-year (y-o-y) increase of 26 percent. It amounts to 57 percent share in overall exports of the country. The non-textile earnings in the same period were $ 4.7 billion, which works out to a y-o-y increase of 15 percent and forms 43 percent of overall exports of Pakistan.

Food exports, too, with a growth of 12.95 percent, contributed to the surge with an increase to $ 2.03 billion — up from $ 1.8 billion during the last fiscal. Fish and fish products surpassed the food group’s performance as its individual growth was 31 percent. Vegetables rose 33 percent to $ 68 million compared to $ 51 million. But fruits were down 5.09 percent to $ 149.6 million. Meat and meat products’ export rose 52.6 percent to $ 82.3 million, up from $ 54 million last year. Pakistan is also exporting wheat as it has a bumper crop this year. Wheat exports rose to $ 61.1 million, compared to just $ 560,000 in the same period last year.

The products that recorded a decline in exports include carpets and rugs — down 3.82 percent and limped to $ 76 million. Footwear was down 21.19 percent to $ 13 million.

The favourable export performance will help Pakistan narrow its trade deficit over the coming five months when fiscal 2011 will close on June 30. The government has declared the current fiscal as the “year of exports”.

Increase in prices of exported products, including textiles and rice, plus rising home remittances sent by overseas Pakistanis and inflow of the Coalition Support Funds to fight terrorism, have improved the current account (CA). It saw a $ 26 million surplus during the first half — July-December of FY 2011.

External balances can improve further by the end of FY 2011, if these factors stay favourable. But there are, already, growing pressure in the external sector with Africa and the Middle East in political turmoil. Some current indications have triggered fears of bigger problems ahead.

Remittances, for instance, continue to rise. The SBP, the central bank, reports that home remittances from overseas Pakistanis, including those from the UAE, GCC, US and UK rose to $ 6.118 billion in the first seven months — July-January — of the current FY 2011. This is an increase of 17.7 percent compared to the like period of FY 2010 when these were $ 5.198 billion.

The inflow of home remittances included UAE $ 1,437 million, Saudi Arabia $ 1,353 million, US $ 1,145 million, GCC — Bahrain, Kuwait, Qatar, and Oman — $ 721 million, UK $ 669 million, and EU $ 195 million. Remittances from Norway, Switzerland, Austria, Canada, Japan and other countries rose to $ 595 million, compared to $ 509 million in the like period of FY 2010.

The inflow on account of exports, home remittances and other assistance have considerably improved the foreign exchange reserves, which are now at an all time high of $ 17.59 billion, the SBP says. The current account deficit at the end of the seven month period stands at $ 81 million — a major improvement over the deficit of $ 3.052 billion as at the end of the like period in FY 2010.

That holds a good promise for Pakistan’s foreign trading partners and investors. One hopes the current political troubles in some of Pakistani markets abroad ends soon; otherwise it can adversely affect our exports, home remittances, and FDI inflows.

The writer is an Islamabad-based journalist and former Director General of APP