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Rupee may stabilise at 285/$

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KARACHI:

Taking cue from a lot of happenings, the consistently strengthening Pakistani currency is projected to stabilise around the level of Rs285 to a US dollar in the inter-bank market.

Any appreciation beyond that level will make imports cheaper and exports expensive, which will result in the widening of trade and current account deficits and an increase in the demand for dollars.

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The gradual slowdown in the sale of dollars by exporters, drop in the future value of dollar in rupee terms on one-month forward counters, fall in foreign exchange reserves and expected return of importers, all indicate that the marathon rupee rally, which is in its fourth week, is about to come to an end.

The rupee has cumulatively regained 6.73%, or Rs19.36, in the past 17 working days and won the title of world’s best performing currency in September. It closed below 288/$ on Thursday this week.

Earlier, it lost 6% of its value in the prior three weeks (Aug 15 to Sept 5) and hit the record low at 307.10/$.

The ongoing crackdown on currency smugglers and Hawala-Hundi traders, however, can still fuel further uptrend for the rupee. The caretaker government has projected the actual rupee value at 260/$. Treasury firm Tresmark, in its commentary titled Ominous October, said “while we all secretly wish rupee to trade below 260/$, there are many reasons we stick to our forecasts of 285/$ being the short-term consolidation level.”

On the matrix of Real Effective Exchange Rate (REER) – the value of Pakistani rupee as compared to the basket of currencies of its trading partners – the currency will hit 98 as soon as the exchange rate reaches 285/$. The surge in REER index beyond 100 will make imports cheaper and exports expensive and that will be a negative development for the underperforming economy.

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“As the rupee strengthens, it adversely impacts REER. In our estimate, at 285/$, REER would be around 98. This is cutting it to close for IMF to be comfortable,” the treasury firm said.

“Exporters are reluctant to accept orders with the local currency under 290, citing increased cost of doing business and prices of raw materials.”

One-month forward premium is now trading at negative 10 paisa, whereas two and three-month premiums on future counters are at 25 paisa and 250 paisa, respectively, it reported.

Just last month, the one, two and three-month rupee-dollar futures were trading at Rs4.60, Rs8.50 and Rs13, respectively, it recalled. “This collapse in premiums is ominous and demonstrates that dollar liquidity is scarce in the inter-bank market, while there is still a backlog of imports.”

Forward premiums didn’t collapse only because banks were generating dollar liquidity, “but exporters have sold (estimated) $1.5 billion in forwards, mainly from the textile and rice industry. This also means some export proceeds are already accounted for and will not fall in October,” it said.

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Importers, who are on the sidelines, will spring into action as soon as they notice the rupee trending to a halt. “Expect a flurry of imports, that day the rupee stops gaining by the magical Rs1 each day.”

In other related developments, the dollar deposits (held with commercial banks) have consistently increased since June. “Reserves with banks in June were $4.7 billion versus $5.5 billion now. With a cheaper dollar, this could accelerate dollar transition.”

Besides, the Helmand province of Afghanistan announced an unofficial ban on Thursday on trading in Pakistani rupees.

Published in The Express Tribune, October 1st, 2023.

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Remittances slow down to $2.25b

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KARACHI:

The remittances sent home by overseas Pakistanis slowed down to $2.25 billion in November 2023 partly due to the return of volatility in rupee-dollar exchange rate in the first half of the month and partly because of a global economic slowdown.

The remittances dropped from a seven-month high of $2.46 billion reached in October 2023.

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State Bank of Pakistan’s (SBP) data on Friday showed that the inflow of workers’ remittances decreased 9% to $2.25 billion in November compared to $2.46 billion in October.

The inflows, however, improved 4% when compared with the remittances of $2.17 billion received in the same month of last year.

Overall, in the first five months (Jul-Nov) of current fiscal year, the remittances dipped 10% to $11.05 billion compared to $12.32 billion in the same period of last year.

Data breakdown showed that inflows from Saudi Arabia decreased 12% to $540 million in November compared to $617 million in the prior month.

Expatriate Pakistanis sent home $409 million from the United Arab Emirates (UAE), which was 14% lower compared to $474 million in October.

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Non-resident Pakistanis sent $268 million from European Union member countries, which was 10% less than $298 million received in the previous month.

Remittances from the United States dropped 8% to $261 million compared to $283 million in the previous month.

Read: SBP brings incentives to attract remittances

Inflows from other countries decreased 7% to $429 million compared to $461 million last month.

UK was the only source from where remittances improved in November, which went up 3% to $342 million compared to $330 million in the previous month.

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Earlier, the return of volatility in rupee-dollar exchange rate in the first two weeks of November had encouraged the illegal Hawala-Hundi network operators to re-emerge in the border areas of Afghanistan and in the Middle Eastern countries.

They offer higher prices to Pakistani expatriates for sending their foreign currency earnings back home, leading to a decline in the inflow of remittances through official channels.

In addition, the global economic slowdown has reduced the capacity of overseas Pakistanis to send more money to their family members and relatives in the country, partly resulting in a reduction in official inflows.

Published in The Express Tribune, December 9th, 2023.

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Textile industry unveils $50b export plan

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ISLAMABAD:

The textile industry has submitted an ambitious plan to the government for achieving a $50 billion export target as it comes up with a set of recommendations for removing barriers and providing incentives to extend the outreach in international markets.

The industry has proposed the setting up of 1,000 garment plants on a fast track to create exportable surplus and diversify the export basket. Each plant will consist of 500 stitching machines with an investment of $5 million, produce garments to make exports of $20 million per annum and generate 1,000 jobs.

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In a presentation given to the Export Advisory Council for Textiles, the industry proposed a “no-cost-no-commitment” incentive package, featuring proposals such as free office spaces for international brands and retailers to encourage their physical presence in Pakistan.

It pointed out that the cost of first six months would be covered through upfront financing from the Export Development Fund along with a rebate of 0.1% of the sourcing value for firms acquiring merchandise worth over $50 million from Pakistan.

It was highlighted that the US fashion industry was shifting from a strategy called “China plus Vietnam plus many” to a new system named “Asia plus rest of the world”. Finding new sources for textile products other than China is a top priority of the US fashion firms.

Some firms were of the view that “Made in China” would gradually become “Managed by China” as Chinese manufacturers were looking at the possibility of outsourcing production. This presents opportunities to Pakistan as well as it can directly supply goods to international firms and also cater to the needs of Chinese companies looking to outsource production.

Textile companies are expected to increasingly source clothing made from recycled or other sustainable fibres. As many as 60% of firms plan to sustainably increase the sourcing of apparel made from sustainable or recycled textile materials over the next five years.

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Demand for cotton and other sustainable fabrics is likely to rise compared to the less sustainable and biodegradable manmade fibre. High sourcing costs and low profit margins are the top challenges to sourcing clothing made from recycled or other sustainable fibres.

There are growing calls for policy support for sourcing such clothing, such as preferential tariff rates and guidance on sustainability and recycling standards.

Read: Pakistan, China forge textile ties

Meanwhile, Pakistan’s textile industry has urged the government to announce a separate power tariff category for exporters, excluding cross-subsidies, stranded costs and other inefficiencies.

It called for ensuring adequate supply of re-gasified liquefied natural gas (RLNG)/ locally produced gas at regionally competitive prices and transition to zero emissions for exporting industries.

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Net zero greenhouse gas emissions are required across the value chain to continue exporting to western markets beyond 2030.

In addition, traceability across the textile and apparel value chain is increasingly sought by importers. This necessitates a mandatory and centralised track and trace system. The system should give priority to upstream sectors like cotton and ginning factories to ensure full compliance along with a fully operational National Compliance Centre to monitor environmental and social compliance.

The textile industry has sought exemption from sales tax for export-sector inputs to expedite processes and become competitive in global markets. It also called on the Federal Board of Revenue to process all FASTER refunds within the promised 72-hour time frame.

It demanded the refund of all pending dues in order to create a favourable and liquid business environment.

It floated the idea of setting up free commercial zones with simplified procedures to facilitate exports, reduce turnaround time and centralise export-related services. It asked for simplifying and digitalising all import and export procedures to enhance efficiency.

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The industry advocated the need for tax incentives and financing schemes like those provided by regional economies, which will result in some competitive advantage in relation to competitors like Vietnam, Bangladesh, India and Cambodia.

It emphasised that varieties of exportable surplus should be increased and textile and apparel exports diversified beyond cotton-based products.

Published in The Express Tribune, December 9th, 2023.

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Urea shortage hits farmers hard

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LAHORE:

Pakistan Kissan Ittehad (PKI) President Khalid Mahmood Khokhar has said that urea shortage is being faced by farmers as its consumption is estimated at 6.7 million tons per annum following an increase in plantation area and growing use of the commodity in cereal and cotton crops.

Talking to media on Friday, Khokhar mentioned that Pakistan required an additional 200,000 tons of urea as a buffer stock to keep prices stable.

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“Unfortunately, during 2023, the domestic production estimate might hardly touch 6.4 million tons versus demand for 6.7 million tons, thus, the farming community is experiencing a shortfall of around 500,000 tons (consumption deficit of 300,000 tons and buffer stock of 200,000 tons),” he said.

Drawing the attention of authorities, Khokhar claimed that full production capacity of the fertiliser industry was not being utilised, resulting in urea shortfall.

He called for finding a workable solution to avoid the recurrence of urea shortage in future to safeguard the farming community from middlemen’s exploitation.

ReadRising cultivaton costs hit farmers hard, says SAB chief

“At present, the industry is selling urea at different retail prices, ranging from Rs3,410 to Rs3,795 per bag, due to variable gas charges imposed on different urea manufacturers by the government,” he revealed, adding that the situation encouraged and provided an opportunity to middlemen to exploit farmers by charging around Rs1,000 per bag over and above the prescribed maximum retail prices of the manufacturers.

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“In a year, middlemen have pocketed more than Rs100 billion as ‘black money’ from farmers,” he claimed.

Talking about the current situation, the PKI president added that historically urea consumption during December had oscillated between 850,000 and 900,000 tons whereas total availability during the month would not be more than 650,000 tons. This clearly indicates a shortfall of 250,000 tons, which provides an opportunity for black marketing and exploitation of farmers.

“If we look at the demand-supply imbalance, the unavailability/ low pressure of gas for urea manufacturing plants has resulted in production loss of around 300,000 tons, which is one of the prime reasons for the shortfall,” he said.

Also, despite the ECC’s approval for import of 200,000 tons of urea, nothing has transpired yet.

The PKI president said that the situation could have been managed, had required gas been provided to urea plants round the year. Secondly, timely execution of import decisions would have further minimised the challenges.

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Published in The Express Tribune, December 9th, 2023.

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