Despite all odds, the most notable on the exchange rate and the energy fronts, the economy, on balance, is making some progress.

Major food crops look set to do well, cotton output so far is also down only seven per cent, large-scale manufacturing is gathering more steam, and in the services sector, retailing has picked up, particularly after the return of a semblance of peace and order in Karachi.

In the agricultural sector, positives continue to outweigh negatives.

Latest post-flood official estimates based on provincial crop reporting centres put this year’s cotton crop at around 11.95 million bales, but Suparco’s satellite imagery surveys show production could go up as high as 14.27 million bales.

But since Suparco’s survey presents the situation as of end-August, whereas the provincial agriculture departments’ estimates are more recent, actual output may be somewhere in between.

Up to October 1, overall cotton production stood at 3.275 million bales, against 3.447 million bales last year. Encouragingly, Sindh’s cotton output is up 35 per cent, which somewhat compensated for an 18 per cent loss seen in Punjab.

Sugarcane crushing is set to begin later this month in Sindh and from early November in Punjab. Suparco estimates put this year’s production at 70 million tonnes.

Sindh-based growers say moderate to heavy rains in lower Sindh has fattened cane stalks, before adding they expect a marginal increase in sucrose content in this year’s crop, as has been the case in the last few years.

Meanwhile, Suparco has forecast milled rice production at around 6.5 million tonnes, which is in line with the latest estimates of the UN’s Food and Agriculture Organisation.

Provincial crop reporting centres are, however, a little skeptic. Based on their projections, overall rice production would remain below six million tonnes.

Sindh-based rice exporters say as harvesting of coarse rice is already in progress in some areas, it’s not difficult to assume that the rice output would not be as low as is being projected by some.

But they say they have reports of delayed or smaller Basmati crops from all the three centres: Punjab, Sindh and Khyber Pakhtunkhwa.

Meanwhile, the over 6.4 per cent rupee depreciation against the dollar in the first quarter of this fiscal year continues to overshadow major developments in the economy.

And now, the increase in fuel oil prices this month is enough to push up inflation even if the latest electricity tariff hike is reversed or revised downwards.

But SBP Governor Yaseen Anwar says the ongoing smuggling of $25 million a day is one of the key reasons for the rapid rupee decline. He also blamed the rupee’s fall on forex mismanagement on the part of banks.

That is why Mr Anwar recently summoned presidents and treasurers of all banks separately and warned them that the central bank would not put up with any nonsense in the future.

But bankers say heavy external debt payments, along with higher outward repatriation of profits and dividends by multinational companies here, was behind the rupee’s fall, in addition to the gap in external trade.

The inflow of just more than half a billion dollars as the first tranche of a new $6.7 billion IMF loan also proved inadequate to provide support to the rupee. Speculation-driven decline in the rupee compelled the SBP to intervene in the market with full force in the last week of September.

While the intervention provided overnight support to the rupee, it also evaporated millions of dollars the SBP had earlier bought from the market.

In addition to the rupee’s decline, which itself was a reason for higher inflation during the first quarter of this fiscal year, flood-related damages to the food supply chain, a pickup in consumer demand and an increase in domestic fuel oil prices (chiefly due to the weaker rupee) all weighed down on the price line.

Inflation, therefore, rose faster than projected, compelling the State Bank to increase its policy rate by 50 basis points to 9.5 per cent in mid-September. As expected, inflation for September fell to 7.4 per cent from 8.5 per cent in August.

But July-September quarter inflation stood above eight per cent.

In the external sector, larger inflow of foreign direct investment after the installation of the new government has raised hope that the overall private foreign investment during this fiscal year would be higher.

Finance ministry officials say that by October 15, $300 million would come under the Coalition Support Fund, which would hopefully take some pressure off the rupee.

They say that the country has already paid half a billion dollars to the IMF in the first quarter, and has to pay $2.5 billion more. On the other hand, out of the new IMF loan, we’ve received around $550 million, and will get $1.65 billion more before the close of the financial year.

This gap becomes larger if we also include all other heads of external debt payment, including companies’ debt servicing and outward repatriation of funds from multinational companies operating in Pakistan.

“Things that can help bridge this gap include installments of project financing from the World Bank, the Asian Development Bank and the Islamic Development Bank,” says an official of the ministry of finance.

“Besides, with the stage set for auctioning of 3G spectrum rights in mobile technology and spadework progressing well for the privatisation of some state-owned enterprises, forex inflows would gradually accelerate, exchange rates would stabilise and forex reserves would rise.”

Rising remittances from overseas Pakistanis — up 7.05 per cent in July-August FY14 against 2.36 per cent in July-August FY13 — also continue to build hopes.

Whereas remittances from the US and UAE remained almost stagnant in the first two months of this fiscal, inflows from the UK and Saudi Arabia grew rapidly, by 25 per cent and 11 per cent respectively.

The cumulative volumes of remittances from EU countries and four GCC states (Bahrain, Kuwait, Oman and Qatar) were not very large, but their growth rate in July-August was handsome — 18 per cent and eight per cent respectively.

Export earnings in July-August this year were four per cent higher than in the year-ago period. But more importantly, two main categories of exports, i.e. food items and textiles, showed much higher growth of 10.2 per cent and 7.2 per cent respectively.

Since the government has allowed additional exports of 500,000 tonnes of sugar to be completed before the arrival of the next crop, chances are that food exports would maintain a double-digit growth rate in the coming months as well. As for textiles, some challenges abound; a short cotton crop being the most obvious one.

However, exports of cotton yarn have been growing very rapidly — thanks to deeper penetration of our exporters into Chinese markets — and readymade garment exports are also up on Bangladeshi garment industry’s woes. So, one can expect that overall textile earnings would remain strong in the future as well. — Mohiuddin Aazim