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Saturday, May 18, 2024

Should Pakistan celebrate appreciation of Rupee against USD?

Pakistan has seen an increase in exports since the start of the current fiscal year. On the other hand, Rupee has appreciated against the dollar as well. But, do these things go in the same direction together?

Pakistan seems to be doing too well in different sectors of the economy. The exchange rate is appreciated with dollar value depreciation of 4.09% over the last three months to 1 USD equaling 152.77 Pakistani Rupees today.

On the other hand, Pakistan’s foreign reserves are filling up via various sources of capital inflows into the country ranging from remittances of $675 million (11th March Figure by SBP) to international lenders buying Eurobonds worth $2.5 billion from the government.

Today, Mr. Abdul Razzak Dawood, the Adviser to Prime Minister of Pakistan for Commerce and Investment also tweeted some statistics from the ministry. He said that the Month-on-Month exports of Pakistan have gone up 13.4 percent in March 2021.

He took to Twitter to say that this was the highest increase in a month seen over the last decade. He quoted that the exports were at USD 2.345 billion and have crossed USD 2 billion for the first time since 2011, for the consecutive six months of the current fiscal year.

Read More: Exports increase 8.74pc to Rs2.651 trillion in 8 months: PBS report

He said that Year-on-Year the exports have gone up by 29.3 percent in March 2021. He said that the 9MFY21 saw an increase in exports by 7% climbing to $18.669 billion, compared to 9MFY20.

However, he added that during the same period the imports also grew by 12% to USD 39.210 billion this FY as compared to USD 34.817 billion in the last FY. This growth has come from the increase in the import of raw material as well as the import of wheat, sugar, and cotton.

The other side of the coin

While Mr. Dawood’s points sound like everything is peachy for the country’s economy, financial experts have another perspective.

Mr. Javed Hassan took to Twitter to comment that even though the appreciation of the currency is celebrated as an indication of inflation going down, however other economic factors are to be considered.

This is in line with the economic theory, as according to the theory if the currency appreciates, the exports fall as the local products become expensive for the buyers abroad as their purchasing power of our goods decreases.

Replying to Mr. Hassan’s tweet, a person posted a picture sent by a distributor to customers informing them of the increase in the textile sector’s price increases.

https://twitter.com/menshoodies/status/1377509452010651650?s=20

The three reasons given are the cost of raw materials, stating that, “price of cotton has risen by almost 90% since its low of April 2020”.

The message to the customer also mentions the increase in the price of polyester caused by soaring global oil prices.

Lastly, the customer is informed about the increase in the transportation cost. The increased demand for goods and low supply of empty 40-foot containers in Asia has increased the cost of shipping to Europe by more than three-fold, adding 5% to the cost of goods.

As the costs to brands increase, the local manufacturing industry can hurt unless they compete with other exporters in the region, in terms of value and pricing.

However, a major hindrance in that is the government’s withdrawal of the Regional Competitive Energy Tariff policy, increasing the cost of electricity to 12% of the sale price, which is very high. Also, most of the textile industry has a low-value upstream industry.

Read More: Current RCET policy can lead to shutdown of textile industry: PIDE

Thus, unless the government gives the textile manufacturers some subsidies to reduce their costs, and in return, they reduce the sale price to exporters, can the industry retain the export of their goods to the foreign markets.