FOR the policymakers, the external sector worries appear now to be a bit less than last year. Exports are picking up, workers remittances continue to grow at a double-digit rate while the current account balance is positive — at least for the time being.

The balance of payments deficit has also reduced considerably during this fiscal year. Foreign direct investment is still low despite a year-on-year increase recorded in October 2012. But portfolio investment is growing rapidly.

Outlook of the real sector is also somewhat promising though electricity and gas shortages still persist. Poor law and order situation in the country along with targeted killings in Karachi also continue to hinder economic activities.

Export earnings grew more than seven per cent year-on-year in October, and overall exports in July-October this year rose five per cent. The most pleasant surprise was a more than seven hundred per cent increase in exports of jewellery during October.

In the four months till October this year, jewellery exports quadrupled to cross $900 million from less than $200 million in the same period last year. Jewellery exporters say innovative designing and penetration into new markets are key drivers of growth in exports which look set to reach $2.5 billion by June 2013, making jewellery the second largest foreign exchange earner after textiles.

At a little over $400 million earnings in July-October this year, rice exports—traditionally the second biggest foreign exchange earner after textiles—have been left far behind jewellery exports. “Very high domestic prices of Basmati (currently in the range of Rs110-Rs120 per kg for bulk buyers) are acting as the main dampener to rice export growth,” laments Mr. A. Baseer, a former vice chairman of Rice Exporters Association of Pakistan.

“With their far lower input costs (including labour, utility and financial charges), Indian rice exporters are giving us a tough competition.”

Like jewellery, exports of some other non-conventional items are also growing. Exports of cement, for example, shot up 17 per cent year-on-year to $190 million in four months, on the back of increased production and ability of exporters to market clinker and cement to countries as far as South Africa.

Large-scale manufacturing expanded 1.85 per cent in the first quarter on the back of some easing in interest rates and rationalisation of energy distribution amongst various segments of the economy. But this growth rate was far slower than 3.57 per cent seen in the first quarter of the last fiscal year. Industrialists blame energy shortages and poor law and order as hurdles in industrial expansion.

Imports decelerated due to weakening of the rupee against dollar and that had a favourable impact on the trade deficit in the first four months the year. More easing of the monetary policy (being anticipated in the wake of falling inflation) and trade concessions coming from the European Union may boost exports further.

The agriculture sector is showing commendable progress. Cotton production is up seven per cent so far this year (up to November 15).

“Actually, cotton output would have been higher had the floods and heavy rains and strong winds not damaged the crop in some districts,” says Malik Sakhawat, of Farmers Association of Pakistan. But he points out that increasing use of BT cotton has helped in containing the crop losses to some extent, adding that progressive growers like him had got as much 70 maunds of cotton per acre against the average yield of 25 maunds.

A 48 per cent surge in cotton output in Sindh has also not only mitigated the impact of the crop loss in Punjab but pushed up the country’s overall production.

“Against the average yield of 27 maunds per acre, some progressive growers in Sindh have got as high as 50 maunds and even more,” boasted Iqbal Dahir, a progressive grower based in Naushero Feroze. People associated with the cotton trade say the total crop this year would touch 15.5 million bales against 14.8 million bales last year.

A limited number of sugar mills in Sindh and Punjab have started cane crushing. Pakistan Sugar Mills Association Chairman Javed Kayani says that sugar production this year may cross five million tonnes mark against 4.7 million tonnes of last year on the back of an anticipated cane crop of 60-62 million tonnes.

Harvesting of paddy is at its peak and rice millers say that overall output of milled rice would exceed last year’s 6.17 million tonnes and may range between 6.4-6.5 million tonnes. The latest FAO report estimates 6.3 million tonnes of milled rice production during the current season.

But officials of Rice Exporters Association of Pakistan are expecting an even larger output because a survey shows that rains and floods had not damaged paddy crop in Sindh as widely as thought earlier.

Better-than-expected performance of agriculture and improved outlook of the external sector of the economy have emboldened policymakers to claim that overall GDP growth in the current fiscal year may surpass last year’s 3.7 per cent. Federal Finance Minister Dr Hafeez Shaikh said at a recent conference of Pakistan Institute of Development Economics that GDP growth would be in excess of four per cent.

The minister said that the government was adhering to zero quarterly borrowing from the State Bank of Pakistan. (Government borrowing from the SBP fell to negative Rs38 billion between July 1 and November 9, 2012 from Rs34 billion in the same period of the last year). Government borrowing from commercial banks also declined to Rs434 billion from Rs625 billion.

Two things have apparently helped the government in reducing its bank borrowings. First is a nominal increase in tax collection, and second is its ability to borrow more from non-bank sources through National Saving Schemes. Tax collection in July-October rose eight per cent from the same period last year, though it still missed the target by a wide margin.

And investment into NSS almost tripled to Rs154 billion in the first quarter of FY13 from just Rs54 billion in the year-ago period due to lucrative rates of return on NSS in a declining interest rate regime and along with introduction of short-term investment schemes.