Current account still in green


Nothing gets the Pakistan Tehreek e Insaf (PTI) in its element quite like the current account moving into positive territory. It was clearly very frustrated by the situation in which the previous government left the trade balance. A deliberately over-valued currency and a strange tendency to encourage luxury imports had over time left the country chronically in need of external funding even to meet its routine expenditures. And it would be unfair to say that the current account has improved because of the freeze in imports forced by the pandemic because the government had been working on it for a while before the outbreak of the virus and had done much to both freely float the rupee and pull back on the kind of imports that were not urgently needed.
The result, no matter how much it has been helped by the doom and gloom that the pandemic has brought to international trade, has been encouraging. Pakistan’s current account has been in green for three out of the past four months now. Yet even though the trend ought to be cause for celebration, which the PTI government is duly indulging in, it is still very strange and not properly explained by statistics. Exports, for example, have been down by about 17 percent year-on-year in July-August, which means that all the good work must have been done by remittances. Indeed, Pakistanis sent back 33 percent more in foreign exchange in July-August this year than the same time last year. But that trend is a little too suspect in itself and hardly indicative of a long-term change.
Analysts are still wondering what has caused remittances to rise so suddenly when Pakistanis have clearly been losing jobs, just like people from all other countries, all over the world since the coronavirus pushed the global economy into one of the strangest recessions in recorded history. For hardly ever has the world beheld a spectacle when all countries were suddenly pushed into negative GDP growth as is happening right now. It could be because the travel restrictions also shut down all informal money transfer channels and everybody was forced to use formal banks. But the quantum of remittances is just too high for that theory to hold much water. Then perhaps all this is because many of those who have lost their jobs decided to send their life savings before coming back. If that is the case, and it is very likely that it is, then the sudden optimism could evaporate rather quickly; perhaps as early as the next couple of months. So PTI should celebrate all its successes, but it should also prepare for what to do if the headlines suddenly turn against it.