Rupee depreciation
It will not be a surprise if exporters now resort to blaming the expensive imports for their woeful performance
Direct beneficiaries of the devaluation will be exporters
For long, Pakistani exporters have blamed the increased cost of doing business as the main reason for their dismal numbers, pointing to the high energy tariffs and power outages, among a plethora of other reasons, for their poor performance. They have also blamed the unstable exchange rate, with the deteriorating security situation acting as the final straw. The recent rupee depreciation has favoured exporters the most, as pointed out by the State Bank of Pakistan deputy governor, but not one word of appreciation seems to have come from those who have complained the most about the value of the rupee in the past, which had been stuck at 101-102 to the dollar level for the past year, and has now weakened to around 104. Around 2.5 per cent of its value was lost on August 24 as analysts attributed the erosion in value to the government realising the need to increase dwindling exports.
China has devalued its currency due to its economic slowdown and the world economic landscape has been changing with improved US numbers, falling crude oil prices, the crisis in Greece and a general laggard consumption overall. In this scenario, Pakistan’s exporters have found it hard to penetrate into their traditional markets, including China and Europe. Added to this is the fact that the country’s exports have mainly been cotton-based, which has not helped, as cotton prices also fell. Countries tend to export what they have a comparative advantage in. In Pakistan’s case, that means textiles. However, in recent years, Bangladesh and India have not just overtaken us in this sector, but have done so at a rapid pace, through providing improved quality, value-addition and variety. There may have been various reasons behind the rupee’s depreciation, with the SBP allowing this to happen to keep in line with recent depreciations of other currencies. However, if this is perceived as something that will help exporters, this might not happen. Exports might become slightly cheaper, but imports will also become expensive. It will not be a surprise if exporters now resort to blaming the expensive imports for their woeful performance.
Published in The Express Tribune, August 28th, 2015.
China has devalued its currency due to its economic slowdown and the world economic landscape has been changing with improved US numbers, falling crude oil prices, the crisis in Greece and a general laggard consumption overall. In this scenario, Pakistan’s exporters have found it hard to penetrate into their traditional markets, including China and Europe. Added to this is the fact that the country’s exports have mainly been cotton-based, which has not helped, as cotton prices also fell. Countries tend to export what they have a comparative advantage in. In Pakistan’s case, that means textiles. However, in recent years, Bangladesh and India have not just overtaken us in this sector, but have done so at a rapid pace, through providing improved quality, value-addition and variety. There may have been various reasons behind the rupee’s depreciation, with the SBP allowing this to happen to keep in line with recent depreciations of other currencies. However, if this is perceived as something that will help exporters, this might not happen. Exports might become slightly cheaper, but imports will also become expensive. It will not be a surprise if exporters now resort to blaming the expensive imports for their woeful performance.
Published in The Express Tribune, August 28th, 2015.