Rupee devaluation proves ineffective in uplifting exports

December 12, 2018 (MLN):  These days, the country is in grip of serious uncertainty with regards to the fate of the Pakistani currency. The recent increase in the policy rate preceded by the rupee’s fall to a new low of 139.06 to a dollar has made many economists and analysts ponder over the effect, if any a weaker currency will have on our exports to narrow down trade deficit in days to come.

Pakistan Bureau of Statistics (PBS) has recently announced the trade figures for the month of November 2018, according to which, the trade deficit improved marginally by 0.25% in dollar terms as compared to the previous year same month.

While exports during the month shrank by 125 million USD and imports dipped by 132 million USD, the net affect helped in narrowed down trade deficit just by a margin.

The previous devaluation of PKR after the announcement of SBP monetary policy to 133.5 to a dollar, during the month of September 2018, seems to have had no contribution in lifting the exports up, as exports stood at $1.9 billion in the month of November 2017 when the rupee/dollar parity stayed flat at 105, compared to the same month of ongoing year where it stands at of 1.8 billion USD.

However, imports have been curtailed due to the devaluation of PKR but this fall off has not been able to shrink the deficit enough.

In Pakistan, it can be seen that persistent trade deficit is positively correlated with currency depreciation.

In the presence of huge under-invoicing of imports, especially under the Free Trade Agreement with China, competitive devaluations by trade competitors, steep increases in domestic energy tariffs even with lower availability, the deliberate devaluation of the rupee is near-fatal to lift exports up, rather it increases the debt servicing of the country.

The devaluation of currency will not be sufficient to propel exports, in the absence of supportive measures and policies.

Source: PBS

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