EXTERNAL ACCOUNT DYNAMICS AND FOOD ECONOMY

SHAMSUL GHANI
(feedback@pgeconomist.com)
Feb 14 - 20, 20
11

On the face of it, external account position looks improved during the first half of the current fiscal year: exports having surpassed the target, home remittances up by 17 percent, current account balance turning black from the traditional red. But, the 'quantum leap' in exports has been neutralized by an almost equal increase in imports on percentage basis. The only redeeming aspect of our external economy is the unwavering commitment of overseas workers who continue to oxygenate it through a sustained flow of their hard-earned foreign incomes.

On an annualized basis, the remittance flow is set to surpass $10 billion by the end of the current fiscal year. Increase in foreign remittance has compensated for the drop in foreign investment flow, which is picking up at snail's pace.

COMPARATIVE FIGURES OF IMPORTANT COMPONENTS OF EXTERNAL ACCOUNT (MILLION $)

PARTICULARS FY-08 FY-09 FY-10 JUL-DEC FY-10 JUL-DEC FY-11
Exports 20,427 19,121 19,673 9,099 10,976
Imports 35,397 31,747 31,209 15,994 19,126
Foreign Remittance 6,451 7,811 8,906 4,529 5,291
Foreign Investment 5,476 2,665 2,086 1,241 1,050

The table figures, while painting a somewhat rosy picture, reveal little about the next half of FY-11. Analysts predict further hike in commodity and food prices in times to come. Oil prices, already having taken a turn for the worse, are also set to go further up in the wake of ongoing political unrest in Egypt, Tunisia, and other countries. According to State Bank figures, Pakistan made import payments of $2,520 million on food group items during the period Jul-Dec 2010, 84 percent higher than the payment for the corresponding period of 2009. This speaks of the severity of food inflation. For petroleum group items, a nominal increase of 3.5 percent has been recorded. But, the impact on this group will be more seriously felt during the next six months when the increase in oil prices will effectively reflect in our import bill.

Food inflation is now asserting itself in almost every corner of the world. India is also struggling to control this demon through policy rate hikes, but with little success. Anand Kumar reports from Mumbai: "The wholesale price index for December, for instance, is up on a year-on-year basis at 8.43 percent. Worse, food price inflation is ruling at politically-unacceptable levels; last week the government announced that food price inflation for the week ending January 15, was up at 15.57 percent. Despite an abundant monsoon last year, the government has failed to tame food prices. The prices of vegetables, fruits, pulses, and even food grains are at record highs. Onion prices continue to rule at around Rs40 a kg in cities such as Mumbai, but in the onion-growing region of Nashik - about 200 km away - farmers are desperately selling their produce for as little as Rs4 a kg."

Food economy management is a serious issue in developing, high-population-low-income nations. It is the approach of economic and political managers that separates bad governance from good one. Exploitation factor and middlemen clout would appear to be the common refrains of Indo-Pak economies. Nevertheless, it is the political maturity that separates the two nations. The concept that a certain level of food prices is 'politically unacceptable' speaks a lot about the political maturity both of the leaders and the voters. Their political leadership ever remains apprehensive of voter-backlash in case of their failure to control food prices. In our case, the voters have yet to learn how to punish their leadership for its economic sins. Opposition here seldom focuses on issues of common man. Being assured of the naivety of voting masses, our leaders pay little attention to the question of good governance. They come into power by making lofty promises to their voters and extend their rule by dancing to the tune of Washington having little idea how the Washington people rate them. Ann Patterson, the former U.S ambassador to Pakistan is reported by Bob Woodward, in his book Obama's Wars, as saying: "I worry that all of this is going to just blow up. Zardari doesn't know anything about governing. He will never get out from being Mr. Benazir Bhutto, but he is basically on our side."

Quality of food economy management is dependent on how concerned are the economic managers and administrative authorities regarding the well-being of their masses rather than the impressiveness of economic figures. It is better to feed your starving people than to boast of high export figures attained by pushing essential food items to the international markets. Rising food prices are, no doubt, an opportunity for agro-based economies, but we need to create genuine food surplus by raising the levels of production through additional investment in land improvement, technological advancement, and human capital. Surplus generated on unsustainable basis when committed to exports gives a false sense of economic betterment on the one hand and raises government expectations of higher foreign exchange on the other.

EXPORTS RECEIPTS BY COMMODITY (BILLION $)

BROAD CATEGORY OF COMMODITIES

FY-10

FY-09

Cotton, cotton textiles and synthetic textiles

10.028

9.404

Rice

2.184

1.983

Leather, Leather garments and footwear

0.894

0.985

Sports goods

0.298

0.273

Carpets and rugs

0.137

0.146

Surgical instruments

0.229

0.254

Petroleum and petroleum products

1.005

0.813

Chemicals

0.742

0.604

Engineering goods

0.230

0.265

Jewellery

0.638

0.286

Cement

0.480

0.581

Fish and fish preparations

0.227

0.234

Fruits and vegetables

0.360

0.273

Meat and meat preparations

0.097

0.071

Others

1.741

1.516

Total

19.290

17.688

In each of the last two years, we have earned around $600 million by exporting fish, meat, fruits, and vegetables. If these food items were committed to the local markets, the pressure on domestic prices could have reduced greatly. But, do we have time to mull over such banalities? Sorry guys, we have a lot of business to do with the Washington. So, excuse us.