Is the Export Recovery Based on Fundamentals?
Published on: December 4, 2023.
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The Reversal of Pakistan’s Export Performance
Despite facing challenges in recent times, Pakistan’s export performance is showing signs of recovery. After a decline in export earnings and credit against foreign bill discounting (FBP), there has been a turnaround in the last four months. The stock of foreign bill discounting loans has increased by $184 million, making it the second-fastest recovery since the COVID-19 pandemic. Additionally, monthly export earnings have also seen an uplift, gradually approaching the levels seen before the pandemic.
The recent increase in monthly export realization may appear to be influenced by the reversal of the Pakistani Rupee’s depreciation. However, there are other factors contributing to this recovery. Even when the exchange rate was falling, monthly export realization continued to rise. This suggests that the recovery is not solely dependent on exchange rate dynamics. Furthermore, there has been a notable increase in foreign bill discounting loans, indicating the positive trend in export performance.
It is worth noting that this recovery is occurring outside of the usual seasonal upswings, such as during religious holidays. This indicates that the recovery is driven by more fundamental factors rather than temporary market fluctuations. Despite the decline in global commodity prices and the consolidation phase of export volumes, key industries such as rice, fiber, knitwear, home textiles, and garments are showing steady growth.
The Timing and Factors Behind the Recovery
One notable aspect of this recovery is its timing. Before the peak of export performance in FY22, export-oriented industries benefitted from favorable conditions, including low markups on banking credit and subsidized tariffs on electricity and gas. However, these stimuli have now ended, making the current recovery even more noteworthy.
Although the irregular recovery in foreign bill discounting loans poses some risks, it is encouraging to see this positive trend amidst high interest rates, increasing energy tariffs, and a slowdown in demand from top exporting destinations. This suggests that Pakistan’s exports are entering an organic recovery phase, driven by solid underlying fundamentals.
Overall, the recent turnaround in Pakistan’s export performance is a positive development. Continuing this momentum will be crucial for the country’s economic growth. By focusing on strengthening export-oriented industries and creating favorable conditions for exporters, Pakistan can further enhance its position in the international market.
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