THE two critical external sources — exports and remittances — of foreign-exchange flows have finally started showing positive signs after a few years of unimpressive performance.

In the first six months of the current fiscal year, exports surged more than 11 per cent after four years of free fall while remittances increased by 2.5pc compared to last year’s 1.9pc decline.

This may not be immediately enough to cover the country’s growing current-account deficit, fuelled by machinery imports for China-Pakistan Economic Corridor (CPEC) projects, rising oil prices and higher oil and liquefied natural gas imports. But it will at least provide a base to build upon and provide a sustainable path in the long run to finance the current account.

The Ministry of Commerce has claimed the credit for the continuing rising trend in exports since the beginning of the current fiscal year, even though they had posted growth in seven out of 12 months of the last fiscal year despite sluggish economic conditions in advanced economies or key destinations for Pakistan’s products.

Nevertheless, it is a positive sign that exports growth is keeping pace, with a 12.3pc improvement in November followed by 14.8pc in December.

In absolute terms, exports during July-December stood at $11 billion, or about $1.1bn higher than the same period a year ago. However, imports also jumped 19pc year-on-year to $29bn during the six-month period.

The government claims that a pickup in economic activity along with investments in CPEC projects have created demand for machinery, petroleum products and other productive imports while exports have been struggling in the past due to the subdued global demand and depressed commodity prices.

The government has introduced a series of incentives for the export sector over the last year

The latest export growth is generally in line with nearly double-digit (9.64pc) improvement in the country’s industrial output. In the five months through November, the critical drivers of industrial production such as iron and steel products increased by almost 44pc, followed by 28pc by the auto sector, 22pc by coke and petroleum, 18pc electronics and 15pc each by non-metallic minerals and rubber products.

Government interventions last year to discourage unnecessary imports also appear to be bearing fruit. The increasing trend in imports that has been going on for the last couple of years showed first sign of a slowdown in December when imports grew by just 10pc against more than 30pc rate of the last one year or so.

The medium-term outflow of CPEC-related payments are, however, estimated to counterbalance the early signs of decline in machinery imports on completion of first round of most energy projects.

Secretary Commerce Younas Dagha said the decline in imports were significant when seen in the context of external factors, such as rising crude oil prices. “If fuel imports which registered an increase of almost 30pc are taken out, the rest of the imports have shown only 1pc increase,” he said.

He hoped the prime minister’s export package, realistic exchange rate and a growing international demand will keep the momentum of rising exports. He also expected the imports of non-oil and non-essential consumer goods to remain under check after government measures to rationalise imports.

The overall trade deficit in the July-December period, nevertheless, expanded to about $18bn, up almost 25pc year-on-year. During the entire 2016-17 fiscal year, the trade deficit ultimately hit an all-time high of $32.58bn.

The target for trade deficit for the current fiscal year is set at $25.7bn, and the government expects to finance around $6bn worth of external liabilities. The target for the current account deficit is set at about $9bn.

Over the last one year, the government has been introducing a series of incentives for the export sector, including lower rates of export refinance facility, long-term finance facility besides the prime minister’s export package for textile, leather, sports goods, surgical goods and carpets as part of a zero-rated sales tax regime, and drawback of local taxes and levies.

To discourage imports, the government made adjustments in duty rates, 100pc cash margins on letters of credit, and restricting non-essential imports through non-tariff adjustments.

The Ministry of Finance now estimates the country’s external liabilities at $6bn to finance during the remaining part of the current year. The risk factors it considers include lower growth in trading partner countries, tighter international financial conditions and higher-than-expected rise in global oil prices.

It, however, expects oil prices to slow down after the current winter consumption in Europe recedes, and believes that sufficient groundwork is already in place after the recent launch of $2.5bn bonds to go again for fresh fund-raising.

But this would be based on estimates for inflows from multilaterals unless hampered by the US influence following recent tense relations.

Published in Dawn, The Business and Finance Weekly, January 15th,2018