STRONG inflows of export and remittance dollars maintained their pace in May and the trend continues.

This has helped the rupee beat back speculative attacks and retain its value almost at a year-ago level in spite of end-quarter external debt payments.

Foreign exchange reserves in 12 months to June 11 also show an increase of $1.8 billion. And since the twin gains have come without any IMF assistance, they look quite impressive.

In the next fiscal year starting July, Pakistan hopes for revival of the stalled $11.3 billion IMF standby loan, the last tranche of which had come in May 2010. Some $7.8 billion had been disbursed before the IMF suspended this loan.

Islamabad is also launching exchangeable bonds against its OGDL stake to raise $500 million or more from international investors. It is in talks with Etisalat to claim an outstanding amount of $800 million against the PTCL’s privatisation.

According to ministry of finance officials, $300 million more is expected from the US as compensation for expenses on the war against militants.

The rising exports and remittances have turned the current account deficit of the last fiscal year into a small surplus in spite of fall in foreign investment. Balance of payments is larger. Analysts say it is actually time to protect external sector gains from weakening to reduce reliance on foreign loans.

“On exports’ front, one way of doing that is to keep new export markets satisfied and to remain focused on non-traditional export items,” says Mr Tariq Iqbal Puri, CEO of Trade Development Authority of Pakistan. He says that in recent years Pakistani exporters have penetrated deeper into China, Japan, South East Asia, Far East and Africa.

A structural shift has also been witnessed in remittances. More foreign exchange comes from the Middle East than that from the US. In May 2011, for example, the largest chunk of home remittances ($292m) came from Saudi Arabia. This amount was almost equal to the combined remittances received from the US and the UK.

Executives of foreign exchange companies say the firms handled larger amounts of remittances in May and sold the same to banks.

But they are upset over the manner in which the state institutions are dealing with them. They say that the recent cancellation of the license of a Quetta-base forex company of B-class and suspension of the license of another one operating in Karachi and Lahore may be justified due to their alleged wrongdoings. “But what is puzzling is that the State Bank move came after it had already halted branch network expansion of A-class companies,” remarked a source close to Exchange Companies Association of Pakistan.

Some 20 A-class forex firms that are grouped under this association are all wondering why the central bank remains cold to the suggestions they put forward at a meeting with President Zardari in May. “We had told the president that seven million Pakistanis living abroad have the potential to send back home at least $25 billion a year—double the current volumes,” said a top executive of a forex company who had attended the meeting. “We had also told him that exchange firms can play a greater role in realising this potential provided their scope of operations is expanded. Nothing has happened since then.”

He and officials of other forex companies told Dawn that the best way to address the issue of hundi/hawala is to allow these firms to arrange foreign exchange for imports of gold and cellular phones because that is where a big chunk of hawala money is being used.

Central bankers recognise the importance of exchange companies not only in boosting remittances but also in catering to the families of overseas Pakistan living in the remotest areas of the country. But they say that since May 2 killing of Osama Bin Laden in Abbotabad, “there has been multi-dimensional pressure on us to ensure that the money changing hands through these companies should not land into the hands of extremists.”

Meanwhile, during May 2011, the tax revenue collection showed a huge 45 per cent year-on-year growth as the Federal Board of Revenue chased tax-dodgers and plugged some leakages in revenue collection.

In 11 months to May, tax collection stood at Rs1310 billion, up from Rs1137 billion in the same period of the last fiscal year.

The FBR officials anticipate that total tax collection at the end of the fiscal year on June 30 would reach the target of Rs1588 billion.

But fiscal deficit keeps expanding because of high non-development expenses, increasing cost of the war against militants and financial bleeding in state-run institutions like PIA and Pakistan Railways etc. Energy sector inter-corporate debt also contributes to fiscal expansion in that it compels the government to continue some of the power sector subsidies.

Businessmen say, prolonged and persistent electricity and gas shortages are frustrating their efforts to boost industrial output. Large-scale manufacturing expanded less than one per cent in April but according to Mr Siraj Kassam Teli, a former president of Karachi Chamber of Commerce and Industry, “LSM growth would have been much higher had power crisis not been so acute.”

The list of items whose output grew in April included jet fuel oil, motor spirit, high speed diesel, solvent Naptha, LPG, wheat, sugar blended tea, beverages, some pharmaceutical products, cotton yarn and cotton cloth, paper and board, iron and steel, footwear, chaff cutters and sugarcane machines etc.

Cumulative LSM growth in July-May 2010-11 stood around 1.71 per cent. Businessmen say full fiscal year growth would not be more than two per cent.