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
devalu
ation of currency and the rise in
international price of cotton, as
payment for domestic cotton is
directly linked to internationally prevailing
prices.
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
s
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.
Monday, 16 April 2018