Economy braving heavy odds
By Mohiuddin Aazim
all odds, the most notable on the exchange rate and the
energy fronts, the economy, on balance, is making some
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
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
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
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
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
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
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
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
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