Optimism for sale

In latest news, Tariq Bajwa, the central bank governor, has expressed optimism over major external indicators, saying that the indicators, particularly exports and remittances, have turned positive in recent months. Is Bajwa’s assessment correct?

The answer to that question is ‘yes’ and ‘no’. Talking to a delegation of Pakistan Business Council, he highlighted that remittances grew 13 percent in the first two months of current fiscal year, whereas exports, he said, “have shown positive growth during the last six months. In fact, during the last three months, exports grew by 13.2 percent, which shows that the decline in exports seems to have finally reversed”.

In the case of remittances, it’s too early to place bets on the growth seen in Jul-Aug; especially considering that the year ended June 2017 saw the first year on year fall in remittance in more than a decade. The Jul-Aug growth may well be just a seasonal impact of Eid-ul-Azha, something which has been observed year after year in remittance data.

In the case of exports, there is no denying that exports grew in the fourth quarter of FY17. It grew 2.7 percent year-on-year, which isn’t exactly a moment of hurrah. And while it is true that July 2017 saw exports rise 11 percent, it is equally true that imports in the same month had growth 36 percent.

The summary data for 2MFY18 (detailed data hadn’t been released until noon yesterday) shows that import growth outpaced (at 24%) the export growth (at 11.8%). As a consequence the balance-of-trade has worsened by 33 percent, landing at $6.3 billion in 2MFY18 as against $4.7 billion in the same period last year.

There are two points to the story. Yes, exports have grown in the last few months, but one doesn’t express optimism over external account by only looking at exports. Imports matter, and reserves matter even more, which is why former finance minister Waqar Masood has finally woken up to the reality and called for market float of the exchange rate in an op-ed published yesterday.

Second, it doesn’t suit a central banker to shout optimism at the mere eking of green shoots.

Central bankers are not supposed to be marketing government policies; instead they should keep their lips pursed and speak cautiously about whatever direction the economy takes. Speaking prematurely about indicators may suit a Q-block manager, but it surely does not fit a central banker, even if they turn out to be right in retrospect.