Pakistan exports surge

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Pakistan exports surge

By Syed Fazl-e-Haider

KARACHI, Pakistan - A record monthly surge in Pakistan's exports during March is a mirage that barely masks the severity of the country's ailing and bomb-wracked economy, according to analysts.

Boosted by global commodity prices and currency devaluation, exports rose 41% to US$2.5 billion in March compared with $1.77 billion a year earlier, according to the Federal Bureau of Statistics (FBS). The unprecedented export growth reduced the trade gap by almost 40% to $920 million from $1.5 billion a year earlier.

The March figure breaks the record of $2.32 billion in exports in January 2011, and Pakistani officials hope exports in the fiscal year ending in June will cross the $22 billion mark. March imports rose almost 4% to $3.4 billion.

The gains from the export boom are minimal, say analysts, even though Tariq Puri, chief executive of the Trade Development Authority of Pakistan hailed the data as "the highest and most remarkable monthly record," The Express Tribune reported.

Rising global commodity prices, a government decision to prioritize power supply to industry and a devaluation of the rupee against the US dollar contributed to making Pakistani products more competitive, but the overall economic dynamics suggest slow growth and high inflation. The poor security situation has also made foreign and local investors increasingly wary, while chronic energy shortages restrict production to around 80% of needs.

The Consumer Price Index (CPI) measure of inflation rose 14.2% during the July-March period of 2010-11 from the same period a year earlier, as food prices surged, according to the FBS. The CPI rose 13.16% in March from a year earlier and was up 1.48% from February.

The high inflation may compel the central bank to further tighten monetary policy, which may have a negative impact on growth.

Inflationary pressures are rising following a 14% increase in fuel prices from April 1, reflecting the rise in global crude oil prices, and new tax measures introduced by the government as it struggles to revive the 2008 $11.3 billion International Monetary Fund (IMF) bailout program, which was suspended in May over the government's inability to implement tax reforms.

The economic situation "is very fragile because the fiscal deficit is much higher than the target of 5.3% because of the government's heavy borrowing from the central bank," AFP reported Mohammad Sohail, head of the Karachi-based Topline Securities as saying. "The overall economic dynamics suggest that our growth rate may not be more than 2.5% this fiscal year.

The central bank in its January to March quarterly report maintained its growth forecast of 2% to 3% for the year to June 30.

Many companies are considering passing over to consumers the Special Federal Excise Duty (SFED), which has been increased to 2.5% from 1%, Dawn newspaper reported.

The Pakistan Peoples Party-led government is facing criticism for uninterrupted borrowing from the central bank that has led to high monetary growth, which will accelerate inflation in the coming months and jeopardize the government's effort to control the fiscal deficit.

Government borrowing has increased the currency in circulation by 263 billion rupees this year 2011, with a 19% year-on-year growth in the period from June 30 last year to February 15.

"Although it is difficult to establish whether higher inflation resulted as a direct consequence of increasing currency in circulation, the trend is still quite evident of a shift away from deposits," The News reported Invest Capital economist Nauman Bashir as saying.

Last month, a visiting IMF mission pressed the government for a 6% increase in the power tariff, while World Bank and Asian Development Bank representatives who were also part of the negotiations, urged the country to withdraw all subsidies.

The World Bank and Asian Development Bank have linked the release of their pledged assistance to a receiving a Letter of Comfort from the IMF, which will remain elusive without some revenue-generating measures to reduce the fiscal gap.

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