PR Resource – Muarateweh.net

Country’ export sector lacks the capability to capitalize on the depreciation of rupee against the US dollar due to various constraints.

“It is true that weakening of local currency does results in increasing export revenues, however, in the present circumstances this phenomenon needs to be revisited as far as the local exports are concerned”, according to people in the export-oriented sector.

It may be noted that rupee fell sharply against the dollar in the local market in recent days and the greenback closed at Rs 76 on Wednesday. On the one hand, the devaluation of rupee is distorting the trade balance because of burgeoning of trade deficit while on the other, the export sector is unable to benefit because of capacity constraints. “Temporary benefits could be enjoyed by the export sector by weakening of rupee, but this is not sustainable in the long run”, says Zubair Motiwala, former President Karachi Chamber of Commerce & Industry (KCCI).

The country’s export sector depends on imported raw materials, which have been made expensive by the devaluation of rupee. This has hit the exports sector by spiking the cost of production.

Appreciation of dollar would only increase the export earnings when calculated in terms of local currency, other wise, in terms of dollar there is little or no change in the export proceeds. “This can benefit the exporters, but as far the as the country is concerned there are no gains for and actually it is losing with the burgeoning value of imported materials,” another exporter opined.

The dire state of the textile sector, which constitutes around 60 percent of exports, is not allowing the opportunity to be fully capitalised. Moreover, many textile units, which are dependant on captive power plants, have recently witnessed a massive hike in energy cost after the hike in gas prices. This hike has made many textile units loose their competitive edge in the international market.

Besides this, the towering crude prices, domestic wheat shortages, and import of non-essential goods are constantly increasing the import bill, which needs to be addressed. According to analyst, instead of eyeing at short-term gains, it should be seen in broader context as it has adverse implications in various directions.

The biggest challenge the depreciating rupee presents is in the form of high imported inflation which in present scenario is worst along with rising external debt, falling stock market capitalisation and heightened liquidity risks.

Moreover, staggering inflation have triggered a tighter monetary stance, as negative real rates create an imbalance in the money market resulting in massive capital flights, analysts added.