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Tuesday, May 10, 2011

Exports-deliver rare good news for-Pakistan

KARACHI -- Exports from Pakistan surged almost 30% over the past 10 months, and the trade deficit shrank by a third last month amid rising global commodity prices and a weakening of the rupee. The figures were rare good news for a struggling economy that depends to a large part on foreign aid and loans.

Exports grew 27.9% to US$20.18 billion during July 2010 to April 2011, from $15.77 billion in the same period a year before, outpacing a 14.7% increase in imports to cut the trade deficit in the period by 2%. Exports in -April jumped 40% to $2.38 billion from a year earlier, and the trade deficit last month shrank by 34% compared with April last year.
Pakistan has been consistently crossing the $2 billion [export] mark for the last five months, Associated Press of Pakistan
reported, citing Tariq Iqbal Puri, chief executive the Trade Development Authority of Pakistan (TDAP). The authority is targeting $24 billion exports for this financial year.

Prime Minister Yousaf Raza Gilani earlier declared 2011 as "Year of Export" for the country, but analysts doubt whether such gains can be maintained amid persistent double-digit inflation, low growth and heightened security concerns that are dissuading overseas investors from maintaining factories in Pakistan. The killing of Osama bin Laden by American forces in Pakistan on May 2 has not reduced these fears.

Many leading foreign apparel brands have asked their Pakistani partners to shift their production units abroad to ensure that their supply-line remain intact in times of crisis, according to The News. Some Pakistani textile manufacturers have or are in the process of establishing units outside the country, including in Bangladesh. Multinationals and other foreign companies are also reluctant to send senior officials to Pakistan because of security concerns, the report said.

Foreign direct investment (FDI) in Pakistan fell 28% in the July-March period to $1.08 billion from $1.50 billion in the same- period last year, according to the central bank.

"Forget now about expansion and fresh investment in Pakistan. There is a lot of talk of the curtailment or downsizing of our operations," The News -reported an official of a Western company as saying.

Heightened security concerns following the killing of bin Laden forced the International Monetary Fund (IMF) to postpone a scheduled- mission to Pakistan on May 8 and shift the meeting to Dubai on May 11. IMF disbursement of loan funds is critical to helping the country through a financial crunch aggravated by a widening fiscal deficit brought about by devastating flooding last August.

Though international rating agency Moody's Investors Service does not see any near-term risk on its sovereign credit rating for the country, it has warned that Bin Laden's killing could raise long-term uncertainties.

"These uncertainties will add to political stress on the bilateral relationship [with the United States], but not derail it," Reuters reported Aninda Mitra, Moody's sovereign analyst for Pakistan as saying. "The slow pace and shortcomings of Pakistan's reform program derive from the political fractiousness between its civilian political parties, and institutional divisions between the executive and judiciary."

Moody's, which ranks Pakistan's sovereign debt as highly speculative at B3 with a stable outlook, flagged potential risks- including the United States reviewing its assistance and deteriorating relationships between Pakistan's civilian and military authorities. Moody's also said lack of fiscal reform remained a drag on Pakistan's credit rating that- had little to do with external factors.

Many US lawmakers have called for a review of aid to Pakistan as they doubt Pakistan's co-operation against al-Qaeda, and have questioned how it was possible for Bin Laden to live near a military training academy without the- knowledge of the Pakistani- authorities.

The country, which has an $11.3 billion loan agreement with the IMF dating from 2008, is under pressure to reduce its deficit even as it copes with more than $10 billion in damage from the August flooding. Last May, the IMF halted its program over a lack of progress on reforms, principally on energy and tax. Cash-strapped country needs a Letter of Comfort from the IMF to get obtain budgetary support funding from the World Bank and the Asian Development Bank (ADB).

Finance Minister Abdul Hafeez Shaikh disclosed at a recent news conference in Islamabad after a US visit that the IMF has agreed to facilitate- issuance of Letter of Comfort to $500 million each from World Bank and ADB.

Pakistan's gross domestic product (GDP) is projected to continue growing at 2.39% during the year to the end of June, 2.6 percentage points cent less than original government estimates.

Syed Fazl-e-Haider ( is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at 

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