LAHORE: History stands witness that devaluation of currency has never been proven to be the best of economic gambits to give exports an upward thrust. It is so because factors like inflation, policy rate, and global economic health have also got a lot to do with it, while productivity of the overall workforce and availability of inputs also count.
Pakistan’s exports started rising much before the current devaluation process started because inflation was low and so were the policy rates, while the shortage of power and energy supplies to industry were addressed appropriately.
Thereafter, devaluation was an added factor, whose impact is short-lived if other parameters necessary for competitiveness are not addressed. Generally governments become complacent if exports start growing after sufficient devaluation. The exports then remain susceptible to change in inflation, productivity or policy rates. All these factors increase the cost of end production and absorb the devaluation advantage in short time.
Data from the past devaluations show that it did not help boost as expected when the inflation was high but they did somewhat grow when depreciation was accompanied with low inflation. The rupee remained for instance in the range of Rs51.6 to Rs52.04 against the US dollar from July 1999 to June 2000 and the exports totaled $8.569 billion in fiscal year 1999-2000 registering an increase of 10 percent over the previous year on low inflation of 3.51 percent.
The value of dollar gradually increased in 200-2001 from Rs52.5 in July to Rs63.4 in June 2001. It was a massive decline of almost 20 percent in the value of rupee in a year. However exports did not correspond to the rupee depreciation and merely increased by $700 million to $9.2 billion. This increase was aided by another low CPI of 4.41 percent.
The year 2001-02 was a year of turmoil for the economy of Pakistan because of 9/11 that effectively restricted market for Pakistani good to the United States and European Union. However the increase in rupee value after 9/11 saved the day for Pakistan and the country suffered nominal decline in exports that amounted to $9.13 billion.
The rupee appreciated against the dollar from Rs64.09 in July 2001 to Rs60.12 by end of June 2002. By the way the CPI inflation in 2001-02 was 3.54 percent.
The rupee appreciated against the dollar in the year 2002-03 from Rs59.7 in July 2002 to Rs57.7 in July 2003. The exports increased by 21 percent on the strength of appreciating rupee to $11.16 billion again, aided by extremely low CPI of 3.1 percent. In 2003-04 the rupee value fluctuated from Rs57.7-Rs57.9, while the inflation stood at 4.57 percent. The exports increased by over 10 percent to $12.3 billion.
In the next fiscal the exports increased by 16 percent to Rs14.39 billion as value of rupee increased nominally from Rs58.27 against the greenback in July 2004 to Rs59.66 in June 2005 amid a CPI inflation of 9.58 percent.
In 2005-06 exports stood at $16.45 billion against an inflation rate of 7.92 percent but dollar remaining stable at Rs60.16. During the following fiscal the exports totaled $16.97 billion and rupee was again almost stable by end of June 2007 at Rs60.60 to dollar and inflation was 7.77 percent. In 2007-08 the rupee was valued at Rs60.39 but its value gradually increased by end of June 2008 to Rs67.25, while exports increased to $19.05 billion and CPI inflation was recorded at 12 percent. The export momentum achieved in the first six months of this fiscal tapered off in the last half as rupee depreciated and inflation increased.
In 2008-09 inflation averaged 20.3 percent while the rupee depreciated rapidly to reach Rs80 against the dollar by November 2008 and remained in the same range by end of June 2009. The exports dipped 6.1 percent to $17.69 billion.
The exports increased to $19.34 billion in 2009-10 when the rupee decline was restricted to around 5 percent and the inflation averaged 12 percent.
The then Pakistan People’s Party (PPP) government managed to stabilise the currency and control the inflation, enabling exports to cross $25 billion in 2102-13.
When the Pakistan Muslim League-Nawaz (PML-N) government assumed power the electricity load shedding was at its peak and natural gas was not available to Punjab’s industries that generated the bulk of exports.
As the industries did not operate at full capacities the exports started declining sharply.
The rupee was stable during the first four years, the inflation was low, the policy rates were lowest ever still the exports declined 20 percent in four years to $20 billion by 2016-17.
Exports recovered to $22 billion in 2017-18 as the power and gas supply problems were resolved. The huge rupee devaluation was aided by low inflation and low policy rates.
This statistics-backed chronological account leaves no doubt that rupee devaluation alone is not going to make a big difference in terms of giving exports a long-term push, thus policymakers, while making such decisions, will have to have a 360-degree view all the factors that are critical to create an enduring export-boosting economic environment.
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