Don't expect to see any of them here.
It's all fake news. We need Darnomics to save us again.
@muhammadhafeezmalik @Mav3rick @bafxet @Jungibaaz
This looks good. But let's not celebrate too soon, the immediate challenges for this government when they entered in 2018 were three-fold:
- Secure lending from multi-lateral lenders, as well as other credit from friendly nations.
- Reduce imports, stabilize then boost exports. Thus turning around CAB in time for repayments,
- Stabilize and then grow net forex reserves, while observing restrictions under IMF programme.
This phase is
successfully concluding. Forex reserves are stable, imports are under control, and we can pay back loans. That's positive and the government deserves some credit.
However, that current account surplus needs to be looked at more closely. It may be positive for finances, but underlying economic effects are varied. The surplus may be the result of some changes in current account flows that I'll broadly summarize under four categories, in brackets I'll place whether this is actually good for us or bad for us, however I will be grossly generalising:
- Short term reductions in imports due to Covid (Negative)
- Long term growth in exports (Positive)
- Long term reduction in imports (Mostly positive - although it depends on the mix of goods)
- Increasing remittances and capital flows (Positive - but little credit for the government in this case)
My own analysis of this surplus is that it is most likely temporary, and is being mirrored elsewhere in the world, not just Pakistan. In 2020, due to covid's effects on the global economy, a whole host of countries that had large CAB deficits, have seen their CAB deficits shrink, some countries like Pakistan, India, Indonesia, have seen historic surpluses when prior to covid they were all operating deficits. This is not due to some policy miracles or strong growth in exports, it's largely due to subdued imports, which in themselves are as sign of weak economic activity.
What evidence do we have to conclude that this is happening elsewhere? Here's the same happening in
India:
The current account recorded a surplus of $600 million or 0.1% of Indian gross domestic product in the three months to March 2020 compared to a deficit of 0.7% in the same period a year ago, RBI data showed.
........
“
On paper this looks healthy but it primarily reflects India’s economic slowdown, which has significantly reduced the non oil, non precious metals imports during FY20,” Rupa Rege Nitsure, chief economist at L&T Financial Holdings, said.
https://uk.reuters.com/article/india-economy-currentaccount/india-records-quarterly-current-account-surplus-for-first-time-in-13-years-idINKBN2412HX
And again in Indonesia:
The country recorded its first current account surplus since 2011 of $1 billion in the third quarter, as
imports fell faster than exports due to weak domestic demand amid the health crisis, BI’s November data showed. The current account surplus was equal to 0.4 percent of gross domestic product (GDP) and a significant reversal from the $2.9 billion deficit recorded in the second quarter. Read also: Indonesia books first current account surplus since 2011
Meanwhile, Indonesia’s exports fell 3.29 percent year-on-year (yoy) in October to $14.39 billion, although the figure represented a month-to-month (mtm) increase of 3.09 percent from September, according to Statistics Indonesia (BPS) data
. Imports fell steeper by 26.9 percent yoy to $10.78 billion on the same month from the previous year. “But we cannot be immediately satisfied with this achievement, because there are still plenty of potential export markets that we have not tapped,” the President said.
This article was published in thejakartapost.com with the title "Govt ships $1.64 billion exports to capitalize on momentum of Q3 surplus - Business - The Jakarta Post". Click to read: https://www.thejakartapost.com/news...-to-capitalize-on-momentum-of-q3-surplus.html.
And again. Look at the comments RBNZ and New Zealand bankers said compared to mine above:
NZ's current account deficit for the year to September was just 0.8% of GDP, the lowest in about 19 years
The relatively low imports arriving in New Zealand this Covid year have helped the deficit between what we get from exports and what we spend on imports to shrink to the lowest level since 2001.
Statistics New Zealand reports that our current account deficit for the year to September 2020 was $2.6 billion, representing 0.8% of our GDP. That compares with a $11.7 billion deficit for the same period up to September 2019.
......
ASB economist Nathaniel Keall said the annual current account deficit had narrowed markedly over the course of 2020
"thanks to the pandemic".
"As we highlighted when the pandemic began, the NZ current account deficit has reduced markedly over the course of the year.
NZ current account deficits often reduce during downturn – but not for the right reasons," he said.
https://www.interest.co.nz/news/108423/nzs-current-account-deficit-year-september-was-just-08-lowest-about-19-years
I could go on giving a few more examples, but you get the point. For countries that previously ran deficits (like Pakistan), covid has slowed down their economies and has reduced imports, while the export sectors may have grown, remained flat, or not fallen as much imports. Hence the net effect; lower deficits, or new and historic surpluses. But there are no signs that this is permanent.
So that's us, what's happening exporting nations like petrostates in the Middle East, big exporters like Japan. For that, I can share with you this article from Fitch, unfortunately, my Fitch access is via my workplace, so I cannot share the full preceding report or post it on the forum:
Current Account Imbalances under Coronavirus to Persist
Fitch Ratings-London-25 August 2020: The coronavirus pandemic is triggering marked shifts in current account balances (CABs) driven by shocks to trade, oil prices, tourism and remittances, Fitch Ratings says.
We forecast 12 major fuel exporters or tourist locations to suffer double-digit deterioration in CABs in 2020. Nine are in the Middle East or Africa.
https://www.fitchratings.com/research/sovereigns/current-account-imbalances-under-coronavirus-to-persist-25-08-2020
So Fitch confirmed the other side of the trade flows puzzle, we can observe the same effects for example, not just in the Middle East, but also for exporters with high value goods exports, such as Japan:
Worsening Japan Export Drop Shows Covid Taking Heavier Toll
“Looking ahead to next year, we expect a slow recovery in exports in 1Q. The timing of a pickup in shipments will hinge on
how quickly the pandemic is contained. In 2Q, the supply of vaccines could breathe fresh life into
demand for Japan’s exports.”
--Yuki Masujima, economist
Declines in Japan’s exports unexpectedly steepened for the first time since May amid renewed declines in shipments to the U.S., as a resurgence of the pandemic took a heavier toll on global trade.
www.bloomberg.com
Again, no need to keep repeating myself, similar stories in
other nations like Japan,there are
some exceptions but overall global trade flows like this, where abnormal are mostly linked to Covid.
If you want a very good overview of how global trade has changed since last year, and what the implications of this are on national economies and globally, I would suggest looking at this blog from two senior economists at the IMF:
https://blogs.imf.org/2020/08/04/global-imbalances-and-the-covid-19-crisis/
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So what have we seen in Pakistan? We've seen larger reductions in imports than we have seen in growth of exports, following the pre-established pattern above. As for where the reductions in imports and increases in exports have come, we can see some figures in this article, I will highlight all the pertinent figures for the last quarter:
Pakistan’s Oil Imports Fall By 24.56pc In Four Months
in
Freight News 23/11/2020
Pakistan’s oil imports declined by 24.56 percent in first four months (July to October) of the current fiscal year, easing pressure on the country’s foreign exchange reserves.
.....
The PBS data showed the breakup of oil imports bill as
petroleum product imports declined by 50 percent in the first four months. Meanwhile,
import of crude oil had gone down by 26.13 percent. Similarly,
import of liquefied natural gas fell by 46.14 percent. However,
liquefied petroleum gas (LPG) imports increased by 54.09 percent in value in July-October.
Meanwhile,
machinery imports went down 6.29 percent to $2.63 billion in the first four months from $2.80 billion. The decline in imports was recorded for almost all kinds of machinery except mobile phones.
Import of mobile phones had increased by 43.6 percent in four months and recorded at $556.78 million. Import of other apparatus fell by 9.73 percent. The overall
transport group also witnessed a contraction of 4.83 percent. An increase of
56.80 percent was seen in imports of textile group — raw cotton, synthetic and artificial silk yarn. Overall
food group import jumped by 43.49 percent to $2.27 billion during the first four months this year against $1.58 billion from a year ago.
According to the PBS data, Pakistan’s
overall imports were recorded at $15.19 billion in July to October period of the current fiscal year
showing decline of 0.38 percent in corresponding period of the previous year. On the other hand, the country’s
exports had shown an increase of 0.62 percent and recorded at $7.58 billion in four months of the year 2020-21 as compared to $7.53 billion in same period of last year. Therefore,
the trade deficit has shrunk by 1.36 percent to $7.62 percent in the period under review.
Source: The Nation
That's the trade balance summarised, the current account surplus is in small part due to a slight increase in exports, a slight reduction in imports, and an increase in capital flows and remittances. So please do NOT mistake this temporary covid related surplus for a surplus the likes of which countries like Japan, China and Germany operate, or even Bangladesh. They took the time to establishment industries and build up exports as a larger percentage of GDP, hence they can afford to run surpluses. In order for Pakistan to run a surplus, it needs a long time to boost industrial base, make export sectors competitive, and then build up exports as a percentage of GDP. The only way to run deficits at the current composition is to starve one-self of imports and massively slow growth. Take a look at this data I gathered from the world bank just now. Pakistan's is the lower most line. The rest of those countries run current account surpluses because they can sustain CAB surplus without starving themselves of imports and without limiting growth.
Essentially, Pakistan's lack of exports are like a big brake on our growth rate. We need to build those exports up so that we can comfortably expand imports and growth rate without breaking the bank and ending up in financial trouble (as was the case in 2017-18). If we were to operate surpluses today, it may be good financially, but is not necessarily the sign of a healthy economy, especially as it is accompanied by very low GDP growth. Nor is it a sustainable surplus given all that I have already said about surpluses being operated by unexpected countries due to covid imbalances in global economics and trade. Furthermore, in that breakdown of import reductions there are some unhealthy signs in the mix too, low energy imports signal weak activity, and lower machinery imports are completely undesirable.
So what we need to see now is for the government to boost exports further, they're up, but they're still a very small percentage of GDP. We need to see a return to stability, growth rate above the current grim forecasts, higher than desirable but hopefully slightly lower and stable inflation, and even then if we run reasonable current account deficits, that is okay as long as the GDP is growing fast enough to service any liabilities. Before the current government we had an unsustainable path that led us to a financial crisis, right now, we are coming back to stability, which is positive. However, we still have far to go to actually build up strength and have sustainable growth, which is the ultimate goal, a temporary surplus is nota key aim at all.
Apologies for any typos, errors, I wrote this up quickly. A lot has been said about the surpluses we're seeing, I hope this adds some clarity.
