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Pakistan: Devaluation benefits

The rupee plunged over eleven percent against the dollar in the last months.

Following this currency devaluation,

the impact assessment of the

devaluation on different sectors of economy, and whether it will be able to

achieve its desired results of boosting the exporting sectors, is currently

being debated.

Exporters have welcomed the move with caution, since this w

ill also increase

the already surging cost of doing business by increasing the prices of energy,

raw materials and transportation. However, for raw material producers, like

cotton farmers, the devaluation is God


sent. They will benefit from both the


ation of currency and the rise in international price of cotton, as

payment for domestic cotton is directly linked to internationally prevailing



Textiles, the country’s largest exporting sector, will be impacted by the

devaluation by a small incre

ase in export volume as well as by the negative

impacts of doing business at an increased cost. In the form of higher energy

prices, the Reclassified Liquefied Natural Gas has become unaffordable,

whereas the cost of raw materials has also increased. Where

the latter

accounts for 70 percent of the finished product, the former constitutes

almost 15 percent.

For sustainable growth in the textile sector, free availability of quality raw

material is required. Being the major raw material in textiles, cotton ha


gradually deteriorated both in quality and in quantity over the last decade.

The government now plans, as reported by several newspapers, to halt cotton

imports or impose duties during crop harvest in an effort to ensure farmers

get an attractive price

and are encouraged to plant more in the next season.

However, this appears to be untrue since the country already faces a shortfall

of three to four million bales a year to maintain its current production level,

let alone meet the increased requirement of

rising exports.

According to a report submitted to the cabinet by a special committee on

cotton, production has faced virtual stagnation since 1991


92, fluctuating

within the range of 10 to 12 million bales.

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