‘Rupee depreciation won’t increase exports’

KARACHI: Stakeholders have warned that any depreciation in rupee would not yield the desired impact on the declining exports, if the cost of production does not get lower and equivalent to the competitors in the neighbouring countries.
Muhammad Jawed Bilwani, leader of value-added textile sector, told The News that around 20 countries in the world had devalued their currency, but Pakistani rupee had appreciated. “In order to compete with our competitors, we will have to match everything with them, from currency appreciation and depreciation to cost of production,” he said.
Pakistan’s trade deficit is increasing badly, where it needs to increase exports. The country faced $20 billion trade deficit, as its imports reached $45 billion in 2014-15 against its exports of $23 billion. During this period imports increased by 2.01 percent while exports declined by 4.88 percent.
Bilwani said rates of utilities; including electricity and gas were higher in Pakistan as compared to neighbouring countries in the competition. Rates of labour, raw material, port and other expenses were also higher in Pakistan.
Pakistan’s utility charges are higher in the region. Abdul Rahim Janoo, acting president of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) said that according to the new gas charges, including GIDC, the industrial sector would pay $6.72 per MMBTU which is 261 percent higher than Bangladesh where the prevailing gas charges are $1.86 per MMBTU. These charges are higher by 83.6 percent from Sri Lanka where prevailing gas charges are $3.66 per MMBTU, 44.2 percent from India where charges are $4.66 per MMBTU and are higher by 55 percent from Vietnam where gas charges are $4.33 per MMBTU.
Billions of rupees of exporters were stuck with the government as sales tax rebates and others but the government was not serious to pay them back. Finance Minister Ishaq Dar announced clearance of rebates by August 30, which have not been cleared yet. “Ishaq Dar had also announced clearance of dues in last budget as well,” Bilwani said.
He said it was not an exporter friendly regime, as the largest exporter of the country; textile sector was not benefiting. Textile policy of last year was not implemented, instead a new policy was announced, whereas the previous one should have been extended, he said.
There has been a depreciation of 4 percent to 47 percent in the global currencies and pressure mounted over Pakistan for a decline in the rupee value. Currency of Bangladesh, Sri Lanka, China, Australia, Canada, Russia and other countries was devalued in last couple of months. “In order to race their exports and get more orders these countries were devaluing their currency,” Said Malik Bostan, a leading currency dealer.
Although pressure also mounted on Pakistan after a decline in its exports, government was bound not to devalue it under an agreement with the IMF. “Government cannot devalue the rupee, but it uses some tools to control or unblock the depreciation and appreciation,” Bostan said.
Pakistan government put an unofficial cap on devaluation of its currency in March 2013 when rupee reached at Rs114 per dollar, later it reached to Rs98 per dollar, where cap on appreciation was placed. “Otherwise it would have reached Rs70 per dollar,” he said. “Now, there is no cap and price mechanism is related with open market, still there were some checks that controlled gambling of the banks,” Bostan said.
Pakistani exporters were forcing the government for depreciation of the rupee, as their profit margins would increase while importers were concerned, as their cost would increase after depreciation of the rupee, ultimately, consumers or general public would be affected with such decision. “Common man also wants no depreciation, as it increases inflation,” Bostan said.
With a decline in oil prices in the international market by 50 percent, Pakistan’s oil import bill has been reduced to $7 billion from $15 billion. If oil prices increase again and there is a currency decline in the world over, pressure will further move around Pakistan. It will have to increase exports and cut down imports.
Bostan argued that any depreciation in the rupee would not have any impact on exports, as history shows exports were not increased. It will temporarily increase the margins of the exporters.
He suggested that instead of removing tools to depreciate the rupee, the government should rebate the exporters in utility charges and give them sales tax rebates that would encourage them for more exports. Besides, the government should work out to bring the outgoing foreign investment back in the country. “Utility rates should be brought at the level of our competing countries,” he said.