Export rally defying bill discounting trends
Published on: June 27, 2024.
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27 Jun, 2024
EXPORT PERFORMANCE IN MAY 2024 SURPRISES WITH A RISE OF 14%
The export performance report for May 2024 has revealed an unexpected surprise. Monthly export proceeds realization by the State Bank of Pakistan (SBP) amounted to just over $3 billion, marking the first time in two years that it has crossed this threshold. The month also saw a 14 percent increase in export earnings compared to the previous month, as well as a 17 percent rise year-on-year, highlighting the strength of the current upswing.
Over the past three years, Pakistan’s annual goods export earnings have averaged slightly above $30 billion. However, in the post-Covid world, it seems that the performance of goods exports has plateaued around a new psychological barrier. Prior to the pandemic, the average was $24 billion for most of the decade. It appears that there was a one-time adjustment of 25 percent, largely due to global inflation, which occurred within a short period. Since then, goods exports have encountered an upper limit.
During the second half of FY22, there was a brief period where it seemed that goods export earnings would surpass the next barrier and increase by an additional 20 percent annually, equating to $36 billion. This was fueled by three consecutive months (March 22 onwards) of monthly export earnings averaging $3 billion. However, this growth was short-lived, and it is only now that monthly export earnings have once again exceeded $3 billion.
The question now arises: is this growth sustainable? In fairness, the headline monthly export number has shown stability over the past eight months, coinciding with the Pakistani rupee reaching a new ceiling of around Rs 280 per US dollar. When annualized, the monthly run rate of $2.7 billion suggests 12-month moving average revenue against goods exports of $32 billion. However, it is worth noting that the export performance during these eight months can be attributed to seasonal and one-time factors, with rice exports playing a significant role. It is surprising, therefore, that May 2024 has bucked this trend.
What explains this phenomenon? Until now, the general assumption this year has been that Pakistan’s total goods exports, excluding food exports, have remained stagnant. The current upswing in export earnings can be largely attributed to key food commodities such as rice, corn, sesame, vegetables, and red meat. In contrast, textile group exports have reached a three-year low, with over $1.5 billion in export earnings being lost across five key segments: knitwear, bedwear, denim fabric, woven garments, and towels, respectively. This figure reflects a significant decline compared to the peak performance in 2021-2022. While volumes have recovered in some segments, such as knitwear and home textiles, export earnings are still below their peak levels. This means that firms will need to increase their exports in order to regain lost revenue. Additionally, the rice export season has now come to an end, resulting in a decline in food export earnings.
There are a few possible explanations for the export rally in May 2024. Firstly, it could be attributed to a catch-up in deliveries following Ramzan and Eid-ul-Fitr, which led to a backlog in orders. However, April 2024’s export earnings were not particularly low; in fact, they were slightly higher compared to the preceding month and the average of the previous three months.
Importantly, the rise in exports was not predicted by the foreign bill discounting index, which has remained stable at $770 million since October 2023. This raises the question of what drove the export rally in May 2024 and whether it is sustainable.
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