Is rupee devaluation worth it?

Experts divided whether tinkering with currency rate is sufficient

KARACHI: The continuous depreciation of the rupee against the dollar is creating a favourable situation for textile exports, which contributes more than 50% to the country’s exports.

But can it offset the current pressure that textile exports face?

“The positives of the rupee depreciation will be counterbalanced by the rising cost of production,” Multinational Export Bureau CEO Babar Khan told The Express Tribune.



Khan, a Karachi-based exporter who exports most of its knitwear to the European Union (EU), said the rupee depreciation will slightly help textile exports but it will not bring any significant change in exports.

Unlike last year, textile exports are under severe pressure, said Khan, adding that his company’s exports are either dull or negative since July 2015.

Textile exporters, especially finished good exporters, pocketed enormous returns in fiscal year 2014-15 mainly because of the Generalised System of Preferences (GSP) Plus scheme clinched at the end of 2013 from the EU. However, the situation is now changing fast.



Textile exporters say slow economic growth in the export markets and rising cost of production in the country have left industry export uncompetitive.

“The rupee depreciation will help textile exports, but much will depend upon the government incentives that it may provide to the textile sector to increase exports,” Topline Securities analyst Sohaib Anjum said.

The textile industry is in discussions with the government to reduce the cost of production. So, one has to see how much incentives it gives to this sector, he added.



The rupee has depreciated about 4% against the dollar since July 2015.

Anjum said that the rupee depreciation against the dollar is still low compared to many other countries that have devalued their currencies in recent months to support their economies. Regional countries start devaluing their currencies when China devalued its currency about two months ago.

“State Bank of Pakistan says that the rupee is fairly valued, but we believe the rupee will depreciate further 2% against the dollar,” Anjum added.

To calm the currency market, SBP on Tuesday said that the rupee is fairly valued against the dollar. “The textile industry will definitely like to see the rupee depreciate further against the green back,” Taurus Securities analyst Adnan Sami Sheikh commented.



But the textile sector problems are much more than this. The industry says that the rise in cost of production, especially the electricity prices, is creating problems.

Moreover, winter months are ahead and the expected cut in gas supply will also hit textile exports in coming months, he added.

Published in The Express Tribune, November 11^th, 2015.

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