THE economy made some real gains in the last fiscal year. The external sector showed a modest improvement, current account balance recorded a surplus after six years and the overall balance of payment surplus almost doubled. Export earnings and workers remittances posted a double-digit growth.Fiscal problems deepened with rising expenses on the war on terror amidst lower than expected cost compensation from the US and in the absence of IMF lending. The Federal Board of Revenue missed the revised tax collection target of Rs1588 billion. The government borrowings from the State Bank of Pakistan and commercial banks remained high. But at the same time, fiscal authorities found new ways of borrowing from non-bank sources, among others, allowing individual investment in treasury bills.
Agricultural growth fell below the target. But post-flood losses remained limited while some sub sectors fared well. Energy deficit had a telling impact on industrial growth. But large-scale manufacturing somehow ramped up. Inflation remained in double digits. But acceleration in the price line began losing pace in the second half of the last fiscal year.
In June 2011, the last month of FY11, key economic trends not only continued but in some cases became even firmer. Export earnings with a phenomenal 36 per cent annual growth touched $2.4 billion mark for the first time. And home remittances grew 31 per cent to remain above a billion dollars for the fourth consecutive month. Trade deficit too was slightly lower than what it was a year ago (see table).
And in the entire FY11, the deficit grew just one per cent to $15.587 billion because exports expanded much faster than imports. Exports in FY11 totaled $24.827 billion with 29 per cent upswing whereas imports bill ballooned 16.4 per cent to $40.414 billion.
Textile and clothing exports saw a stunning growth of 35 per cent primarily due to a big rise in international prices of cotton. During the current fiscal year cotton prices are lower than in the last year and this can depress textile export earnings.
Cotton growers say this year’s crop would reach 15-16 million bales against about 12 million bales of last year.
“Adequate availability of domestic cotton would hopefully cut the cost of textile and clothing sector that had to resort to cotton imports last year.
And this should compensate any losses that may accrue if buyers demand a cut in per unit prices of our textile exports,” says a former chairman of Pakistan Trade Development Authority. He, however, believes that there is a need to raise the share of value-added textiles in the overall mix of textile and clothing exports.
In the last fiscal year, raw cotton (three per cent) and cotton yarn (17 per cent) accounted for one-fifth of the total textile earnings of $13 billion plus. And the overall textiles and clothing exports too constituted a little more than 50 per cent of total exports. “This has to change. Not only the share of non-textile exports must increase for sustainable growth in total exports but within the textiles group, the share of value-added products like bed wear, knitwear and readymade garments must be raised.”
Large-scale manufacturing had expanded by about six per cent in April 2011 but it fell two per cent in May as energy shortages deepened with the arrival of the summer. Chairman SITE Association of Industry Abdul Wahab Lakhani says that electricity failures have affected production at 4000 plus industrial units located in SITE area of Karachi. “The recent tussle between the management and KESC workers and consequent suspension of the KESC’s field operations has added fuel to the fire.”
Whereas power shortages continue to worry businesses forcing some of them to shelve their expansion plans, work on new production units in steel making and fertiliser and chemical manufacturing continues along with BMR and expansion projects in these and other sectors. Fatima Fertiliser, Ayesha Steel and additional soda ash production facility of a multinational come handy as examples.
A surge in rural income due to doubling of cotton prices in the last fiscal year amid prospects of a bumper cotton crop this year have emboldened cotton ginners to set up new factories. According to Mr Naseem Usman, Chairman Cotton Brokers Forum about Rs3 billion worth of fresh investment has been made in this sector and 40 new ginning factories are expected to start operations soon.
An official of the ministry of finance told Dawn that FY11 GDP growth initially estimated at 2.4 per cent may turn out to be a little higher—around 2.6-2.8 per cent—because “outputs of cotton, rice and sugarcane as well as LSM growth were estimated very cautiously on the lower side.
‘Giving an example, he said, LSM growth for the entire FY11 was estimated at one per cent whereas actual growth in 11 months to May has risen to 1.33 per cent “and our projection is that it may settle somewhere around 1.3-1.5 per cent.” He said that export earnings and home remittances in June also have shown faster growth than expected thus outweighing the initial annual projections of full fiscal year 2011.
Officials say, however, that challenges still remain. The most important among them are power shortages and rising circular debt in energy and food sector, huge financial losses in state-run organisations, uncertainty about external aid and loans, absence of facilitating environment for launching of sovereign bonds and low capacity utilisation in a number of industries.—Mohiuddin Aazim