19 September 2004	Sunday	03 Shaban 1425

KARACHI, Sept 18: The State Bank says in its balance of payments (BOP) statement that trade deficit in July 2004, based on free-on-board value of imports and exports, was $350 million. Earlier, the Federal Bureau of Statistics reported that trade deficit in July was $189 million.

The numbers compiled by the FBS are normally based on CIF or cost, insurance and freight value of imports, exports and not on fob value. So, because of the different natures of the two sets of figures, the trade deficit data reported in the BOP statement and that compiled by the FBS are bound to differ. But this time the difference is so big that it needs to be explained by the officials concerned.

According to the BOP statement available on SBP website, Pakistan's fob imports in July 2004 stood at $1.441 billion whereas its fob exports stood at $1.091 billion. Thus the trade deficit was $350 million. But the data released earlier by the FBS and used by the SBP in a separate export and imports statement, also available on its website, put imports at $1.372 billion CIF and exports at around $1.823 billion fob for July 2004.

This difference between the July imports figure reported in the BOP statement and in exports and imports statement of the SBP can be justified on the basis that the first one is based on fob and the second one is based on CIF. But why the figures for July exports reported in the two statements also differ despite the fact that both have used fob value of exports needs to be explained.

If there are any reasons, and there must be some, for the difference in the two sets of figures then the State Bank should add an explanatory note to its BOP statement clearing this confusion. The removal of the confusion regarding the actual number of trade deficit is important for a variety of reasons, one of which is that it would restore confidence of the financial sector in the accuracy of the data disseminated by the central bank and help them make projections about exchange rates movement more accurately. That, in turn, would help eliminate volatility in exchange rates that is often the result of inappropriate projections made by the banks based on incomplete or deceptive data.

Dawn inquiries made at the State Bank as well as at the Federal Bureau of Statistics do offer some explanation for the difference in the two sets of figures being reported by them, but the financial market does need an official explanation coming from either of the two institutions.

The inquiries revealed that July exports of $1.091 billion fob, as reported in the BOB statement, was the actual inflow of export receipts, whereas July exports of $1.183 billion fob, as reported by the FBS, was the fob value of the exports shipped in July.

The difference between the two is this: the value of the shipped exports is sum total of the values of individual export consignments shipped during a given month. But the value of exports reported in the BOP statement is the sum total of the realized export proceeds of a given month. Besides, the exports value reported in the BOP statement is arrived at by adding up the realized export proceeds in different currencies and then translating them into dollars. On the other hand, the value of the shipped exports is based on their rupee value converted into dollars by using the average dollar-rupee exchange rates during a month.

Regardless of the debate on which set of data on external trade is more to depend on for making exchange rate projections, the one issued by the FBS or the one being reported in the BOP statement, the fact is that a huge $350 million trade deficit in July turned Pakistan's current account surplus into deficit. The BOP statement shows Pakistan saw a current account deficit of $37 million in July 2004, whereas it had witnessed a current account surplus of $469 in July 2003.

The overall balance of payments also turned negative in July 2004. The SBP data show that overall BOP saw a deficit of $477 million in July 2004, whereas it had witnessed a surplus of $342 million in July 2003.

The overall BOP turned negative not only due to a minor current account deficit of $37 million, but largely due to a $421 million deficit in the financial account.

EXCHANGE RATE: As overall BOP turned negative, it did weaken the health of the local currency. The rupee shed 30 paisa or more than half a percentage point of its value to the US dollar in July 2004, coming down to 58.42 a dollar at end-July from 58.12 a dollar at the end of June.

The rupee also lost 33 paisa or about 0.6 per cent of its value against the greenback in August on the back of higher demand for dollars. This suggests that overall BOP in August would also have been under pressure. The BOP statement for August may be released sometime next month.