C. BALANCE OF PAYMENTS
Chapter 9
Trade and Payments

Pakistan's external trade has staged a strong recovery during the outgoing fiscal year 1999-2000. Both exports and imports have exhibited a strong rebound from a significant downturn of last year. The 'V-shaped' recovery has been made possible for a variety of reasons, including domestic as well as external. On the domestic front, the bumper cotton crop and its reduced prices made the textile sector buoyant. This, coupled with a good rice crop and pick up in manufacturing output minus sugar, improved the supply of exportables. In addition, the policy of maintaining a stable and predictable exchange rate following the sharp depreciation in previous years helped Pakistan to maintain its external competitiveness. On the external front, the global economy has recovered strongly from the downturn of 1997-98 and posted a growth of 3.3 percent in 1999. The world growth projection for 2000 has been revised upward to 4.2 percent. The continued strong growth in the United States, recovery in Europe, and stronger than anticipated recovery in the crisis-hit East Asian economies have led to a strong rebound of the global economy which has firmed up the demand for Pakistani exports in its major markets. Hence, the improved supply of exportables, stronger demand in international markets and stable and predictable exchange rate have been mainly responsible for a 'V-shaped' recovery of Pakistan's exports during 1999-2000. The recovery in global economy was accompanied by a more than doubling of oil prices which cost Pakistan additional $ 1.0 billion in terms of higher import bills. By and large, the strong recovery in Pakistan's external sector is likely to serve as catalyst in reviving economic activity in the short to medium term.

Export Trends
Pakistan's exports during the first nine years of the 1990s (1990-91 to 1998-99) grew at an annual average rate of 5.7 percent. The annual average growth rate during the first half of the decade (1990-91 to 1994-95) was 10.9 percent while in the next four years it declined to an average rate of about one percent. However, the average decline in exports during the last three years (1996-97 to 1998-99) has been even more sharp at 3.5 percent per annum. The decline was rather steep in 1998-99 at 9.8 percent mainly on account of import compression policy pursued in the aftermath of economic sanctions, less than targeted cotton crop affected the exports of cotton and cotton related products and depressed commodity prices in the international markets. The trends in exports since 1990-91 are given in Table 9.1.

* Provisional
Source: Federal Bureau of Statistics

Exports during the current fiscal year (July-April, 1999-2000) registered an increase of 9.8 percent, as against a decline of 11.7 percent in the comparable period of last year — increasing from $ 6307.9 million to $ 6927.2 million.

The rise in exports was attributed to the higher exports of the primary commodities group (8.9%), textile manufactures group (11.9%), other manufactures group (13.2%), but exports under category "others" registered a decline of 7.7 percent. Within primary commodities, the exports of rice, raw cotton and fish & fish preparation have registered a significant growth but exports of leather depicted a decline (7.0%). The textile related items in textile manufacturing group have registered impressive growth despite significant decline in their unit values. Under the head — "other manufactures", the export of carpets has increased by 31.2 percent but exports of leather manufactures and surgical instruments have declined by 5.7 percent and 0.6 percent respectively. The commodity-wise details are given in Table 9.2.

* Provisional
Source: FBS, Islamabad

The major contributors to current year's (July-April, 1999-2000) export earnings are 'textile manufactures' which grew by 11.9 percent and contributed to 77.6 percent in additional export earnings. Its share in the total exports also dominated at 65.0 percent. The second major contribution has come from the exports of "other manufactures" which registered a growth of 13.2 percent and contributed to 18.3 percent in additional export earnings. The export of primary commodities as a group showed a rise of 8.9 percent and contributed to 11.7 percent in increased export earnings. The exports under category "others" have portrayed a decline of 7.7 percent with a negative contribution of 7.6 percent to the increased export earnings [See Table 9.3].

* Provisional
Source: FBS & E.A.Wing, Finance Division

Export Losses (Fall in International Prices)
Pakistan's exports staged a recovery despite decline in unit values of its major exports in the range of 0.9 percent (knitwear) to 37.9 percent (raw cotton) during the first ten months of the current fiscal year. Had unit values remained at the last year's level, the export proceeds would have been higher by $ 319.9 million and export growth would have been 14.9 percent as opposed to 9.8 percent actually reported [See Table 9.4].

* Provisional
Source: FBS & E.A.Wing, Finance Division

Month-Wise Exports
Monthly exports during July-April, 1999-2000 have been higher than the corresponding months of last year, with the exception of March, 2000 when it declined marginally (0.2%). Exports averaged $ 692.0 million per month during the first ten months of the current fiscal year as against $ 630.8 million of the comparable period last year. In other words, on average, exports have been higher by $ 61.2 million per month during this period. The quarter-wise estimates suggest that exports grew by 4.8 percent in the first quarter (July-September) and continued to accelerate thereafter, growing by 10.8 percent in the second quarter (October-December), 10.6 percent in the third quarter (January-March) and 18.0 percent in the month of April, 2000. The month and quarter-wise exports are given in Table 9.5.

* Provisional
Source: FBS, Islamabad

Concentration of Exports
Pakistan's exports are highly concentrated in few items namely, cotton group, fish, leather group, rice, synthetic textiles, wool & carpets and sports goods. These seven categories of exports, on average, accounted for over 88 percent of the total exports in the first nine years of the decade of 1990s. Among these categories, cotton group alone contributed around 60.2 percent of total exports in this period, followed by leather (8.1%) synthetic textiles (6.6%) and rice (5.6%). These four items together accounted for around 80.5 percent of total export earnings. Furthermore, almost all the export earnings of cotton group have originated from textile and clothing. Such a high degree of concentration of exports in few items has led to instability in export earnings. The annual percentage shares of major export commodities since 1990-91 to 1998-99 are given in Table-9.6.

Source: Pakistan's Foreign Trade Key Indicators, Ministry of Commerce, Islamabad

Economic Classification of Exports
The annual percentage share of manufactured goods have been continuously rising while the respective shares of the exports of primary and semi-manufactured goods have been on the decline. During 1990-91 to 1998-99 the share of manufactured goods in total exports increased from 57 to 70 percent and that of the semi-manufactured and primary commodities have declined from 24 to 18 percent and 19 to 12 percent respectively. During the first three quarters (July-March) of the current fiscal year, the share of manufactured goods moved upward by 2 percentage points to 72 percent while the share of semi-manufactures has dropped by 3 percentage points from 18 to 15 percent. However, the share of primary commodities during this period witnessed a moderate rise of one percentage point. The exports of manufactured & semi-manufactured goods together accounted for 87 percent of total exports and only 13 percent was the share of primary commodities. The annual details are given in Table-9.7.

* Provisional
Source: Federal Bureau of Statistics, Islamabad

The changing composition of exports suggests that Pakistan is no longer a country that relies heavily on the primary commodities exports for foreign exchange earnings. However, Pakistan's manufactured exports have remained heavily dominated by the labour intensive goods — especially textiles and clothing over the last one quarter of a century.

Direction of Exports
Pakistan is trading with large number of countries but its exports are highly concentrated in few countries. Slightly above one half of Pakistan's exports during 1990-91 to 1998-99 went to seven countries namely, USA, Germany, Japan, UK, Hong Kong, Dubai and Saudi Arabia. Among these countries, the share of Pakistan's exports to USA has been rising persistently while that of Japan exhibited a continuous decline mainly due to the protracted recession. The share of exports to Germany, UK, Hong Kong, Dubai and Saudi Arabia remained almost stagnant with minor fluctuations. The country-wise annual share in exports since 1990-91 to 1998-99 is given in Table-9.8.