EXPORT earnings over the first half of the current fiscal year increased amid a substantial fall in imports thus squeezing the trade deficit. Home remittances kept up a doubledigit growth and foreign direct investment also recorded a modest rise.

As a result the balance of payments deficit shrank substantially and the current account witnessed a small surplus.

A much-delayed disbursement of $1.1 billion in August last year and another $688 million in December by Washington from the US Coalition Support Fund also lessened the external sector worries.

Export earnings have maintained their rising trend for the fifth consecutive month ending December. Earnings have increased not only of traditional sectors like textiles, food items and tanned leather but also of non-conventional categories like jewellery, cement and pharmaceutical products.

Overall textiles export earnings went up 8.5 per cent to about $6.46 billion in the first half of the current fiscal year from $5.95 billion a year ago. More importantly, textile earnings increased despite a seven per cent slippage in exports of bed wear to $871m from $938m.

While the export of raw cotton dropped more than 50 per cent to $78 millionfrom $161 million dollars, several important categories, such as cotton yarn, cloth, towels and readymade garments recorded a double-digit growth. However, earnings from knitwear remained almost unchanged around $1 billion.

Exports of food items also yielded larger amount of foreign exchange despite a massive decline of 35 per cent and 61 per cent in quantity and value of Basmati rice respectively. However, this loss was compensated by increased earnings through exports of vegetables, meat and meat preparations, fish and fish preparations, spices, oilseeds, nuts and kernels.Besides, sugar exports also fetched an additional $128 million. In the first half of FY12 no sugar was exported.

On imports front a noteworthy development was that in six months to December 2012 Pakistan saved about $240 million by way of reducing imports of palm oil to 1.032 million tonnes from 1.105 million tonnes. This became possible due to increased activity of newly set up edible oil refineries.

Pakistan Bureau of Statistics data show that edible oil production in the country increased 11.6 per cent to 141,597 tonnes during July-November 2012 (December statistics is not available). Another important feature is that whereas import volumes of petroleum crude increased by 19 per cent (to 3.53 million tonnes), those of petroleum products went down by seven per cent (to 6.38 million tonnes), clearly reflecting im-proved output of local oil refineries.

Inflows of foreign direct investment that had dried up in the last fiscal year have started rising in the first half of this fiscal year. Between July and December 2012, Italy topped the list by making a net FDI of $121.2million followed by Hong Kong ($112.6m), US ($106.4m), UK ($99.8m), Philippines (93.1m) and Switzerland ($90.5m). The areas of economic activity that attracted the bulk of FDI included oil and gas exploration, financial business, transport, construction, chemicals and food.

Large-scale manufacturing showed a big rise of 6.5 per cent in November 2012 with respite in the intensity of electricity outages and increased export-led demand besides reflecting the base effect as LSM output had declined by just half a percentage point in November 2012. (December data is yet to be released).

Overall LSM expansion between July and November 2012 came closer to 2.4 per cent on the back of increased output of a number of industries including furnace oil, LPG, iron sheets/ coils/plates and stripes, metal drums, heavy machinery and equipment, electric generators, tractors, buses, cement, chaff cutters, wheat thrashers, power looms, refrigerators, cooking oil, blended tea, paints and varnishes, paper and board and food and pharmaceutical products.

But the CNG supply crisis is showing little signs of abating and poor law and order-related and politically influenceddisruption in normal business activities continue ahead of next elections.

Besides, fuel oil prices are up and banks are still reluctant to lend money to the private sector. So whether the current pace of LSM growth can be maintained in coming months is difficult to assess.

Signs of improvement in external sector along with healthier than anticipated activity in LSM and reasonably good agricultural growth expectations have enabled economic managers to see some light at the end of the tunnel.

`We would be uncomfortable but in a manageable position (at the end of this fiscal year),` Finance Minister Hafeez Shaikh asserted while speaking recently at a ceremony at Karachi Stock Exchange. Brushing aside the impression that Pakistan was `dependent` on a powerful country or institution for its economic survival, he reminded the audience that the country had not received a single penny from the IMF since 2010. `Nor did we receive a considerable amount from a big power that could impact us effectively`, he said in the same vein. After presenting an overview of sectoral developments, the finance minister said that economy was poised to grow four per cent during the current fiscal year.

Essentially, Pakistan`s growing expenses on the so-called war-on-terror have been at the root of its widening fiscal deficit. And financing of fiscal deficit, amid low growth in tax revenue by the government`s bank borrowings fromcommercial banks, has crowded out the private sector.

According to the latest SBP statistics, the federal government borrowed Rs761 billion from commercial banks between July 1, 2012 and January 11, 2013 up from Rs633 billion in the comparative period of the last fiscal year. But at the same time the government also retired Rs141 billion worth of most-inflationary credit of the central bank whereas in the same period of FY12 the federal govern-ment had rather made a net borrowing of Rs147 billion. Banks` net lending to the private sector, however, fell to just Rs53 billion from Rs191 billion.

Bankers say that faster credit retirement after 250 basis points cuts in SBP`s policy rate (in three instalments since June 2012) is also having an impact on volumes of private sector`s credit. They say that old pricy loans are being paid up so that businesses can re-borrow from banks on lower interest rates.