Ex­port prospects

The Pak Banker - - FRONT PAGE -

Af­ter an ab­nor­mally high deficit in July18, the cur­rent ac­count deficit de­clined in Au­gust. The CAD was the high­est ever monthly num­ber in July at $ 2.1 bil­lion which is down to a mere $ 0.6 bil­lion in Au­gust. This takes the two months toll at $ 2.7 bil­lion ( 5.3% of GDP) which is up by 10 per­cent year- on - year. De­tails show that there are sig­nif­i­cant dips in var­i­ous heads of im­ports sug­gest­ing that the de­lib­er­ate ef­forts to slow­down the econ­omy are fi­nally work­ing. The im­ports of goods fell by $ 1 bil­lion from July to $ 4.5 bil­lion in Aug18. The im­ports picked up pace in 2HFY18 and so did the CAD; the good news is that im­ports are down by 9 per­cent from av­er­age monthly im­ports in 2HFY18.

The lower im­ports in Aug18 are at­trib­uted to ad­just­ment in petroleum im­ports which were ab­nor­mally high in July18. The fall in im­ports is con­sis­tent in key other groups which are demon­strat­ing the im­pact of cur­rency de­pre­ci­a­tion, in­ter­est rates hike and other im­port curb­ing mea­sures such as reg­u­la­tory du­ties. In case of food im­ports, jul- Aug18 av­er­age im­ports are down by 6 per­cent from the monthly av­er­age of 2HFY18 ( Jan- jun18). The trend is even bet­ter in ma­chin­ery im­ports where the re­spec­tive fall is 22 per­cent - all kind of ma­chin­ery in­clud­ing power gen­er­a­tion, elec­tri­cal ma­chin­ery, tele­com, tex­tile, agri­cul­ture and con­struc­tion are down by over 20 per­cent.

This shows that eco­nomic ex­pan­sion cy­cle is re­ced­ing as no new power project is likely to be an­nounced while the pri­vate sec­tor ex­u­ber­ance to ex­pand is fad­ing away too. That is good and bad news at the same time - the good part is that there is some re­lease of im­ports pres­sure while the bad part is that the econ­omy is not gear­ing up to ab­sorb 10 mil­lion new jobs in five years. It may be added here that the econ­omy has gained a size that im­ports even af­ter slow­down are high enough to haunt the pol­i­cy­mak­ers. Al­most all im­port heads have shown neg­a­tive growth in Jul- Aug ver­sus Jan- Jun but petroleum group where av­er­age monthly im­ports are up by 38 per­cent. The new power plants have come up, the num­ber of au­to­mo­biles on the road has mul­ti­plied, and the re­liance on RLNG is in­creas­ing. These will keep the petroleum im­ports up un­less oil prices go down.

Ac­cord­ing to ex­perts, the gov­ern­ment should try to get loans from China, KSA, oth­ers and prob­a­bly the IMF to get a breath­ing space of 6- 12 months and work on build­ing ex­port com­pet­i­tive­ness in the process. Ex­ports marginally picked up in the 4QFY18 ( Apr- Jun18) due to cash in­jec­tion and some re­lease of re­funds took place in 3QFY18. Mar- May18 was best time for ex­ports where the monthly av­er­age was $ 2.27 bil­lion which is down by 10 per­cent in Jul- Aug monthly av­er­age to $ 2.05 bil­lion. There might be some pick in ex­ports in Sep- Nov due to Christ­mas re­lated sea­sonal orders.

The ex­port­ing in­dus­tries are likely to do well as they are get­ting gas at more com­pet­i­tive rates. This cou­pled with lower du­ties on in­ter­me­di­ate goods and raw ma­te­rial im­ports for re- ex­port­ing pur­poses can bode well for ex­ports. The other sil­ver lin­ing is the rise in re­mit­tances this year so far - in July it was sea­sonal fac­tor that took the monthly in­flow to $ 1.93 bil­lion and it was ex­pected to tone down in Au­gust. How­ever, the fig­ure crossed $ 2 bil­lion in Au­gust. If re­mit­tances move up to $ 2 bil­lion per month and ex­ports touch $ 2.2 bil­lion per month, cur­tail­ing im­ports to $ 4.6 bil­lion, this will keepthe monthly CAD at $ 1 bil­lion.

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