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It is feared to suffer $ 2 billion losses one-fifth of the targeted exports

Nov 19 - 25, 2001

For an economy highly dependent on, and constantly pressurized to expand the base of its exports, a strengthening Rupee poses many problems for Pakistan. It means lessened earnings in term of rupee at a time when external trade in disarray and increased insurance costs have pushed the prices of Pakistani exports in the international market.

After September 11 and with the beginning of US bombings on Afghanistan dollar kept shedding its value against the rupee: dollar which traded for over Rs 67 in the open market slid down to Rs 60.45 on November 14. The inter-bank market was no different: dollar slid from Rs 64 to Rs 61 and for the first time for as long as one remembers dollar traded lower in the open market than in the inter-bank market.

Pakistani exporters have to make adjustments for increased insurance and freight costs imposition of war risk insurance and five-fold increase in hull insurance on all ships entering the national coastal waters from $ 25,000 per visit to $ 125,000 per visit. This has increased the export prices to incompetitive levels in many cases in the international market which is reportedly reluctant to place fresh orders, and in many cases also not honouring previous commitments.

Sources in the export-oriented industries told PAGE that with all the other overheads remaining constant the slow down of economic activities across the globe, particularly in such major markets as the US and EU pose immense challenges to the exports. Despite a strong performance on November 14 when dollar gained Rs 2.15, the first time since the US bombings on Afghanistan, many feel that the parity would take weeks, and may even be months, to stabilize.

As is, exports have already showing signs of slowing down. Warnings, disguised as statements, have already emanated from the highest levels of the government. According to the chairman of Export Promotion Bureau, Tariq Ikram, the country is feared to suffer $ 2 billion losses one-fifth of the targeted exports in the current fiscal.

Retail sales in the US, Pakistan's biggest trading partner, has gone down as much as by 60 per cent and retail sales in second biggest market, the EU, has also declined by 20-25 per cent during the same period. This, in turn, would mean reduced export from Pakistan to the discomfort of exporters denied the volumes in not too distant a past and declining earnings from Rs 64 to Rs 61 for each dollar in the interbank market and much more in the open market in term of rupee.

The reduced earnings is not much unlike a reduction in salary of which poses many problems to an individual, and for that matter an export-oriented company: on the one hand, input costs remains the same, or even on the rise, and on the other increased insurance rates are pushing the export prices. Even with input costs remaining the same, the buck, as they say, doesn't stop here as dollar has shed almost six rupees since that fateful day in September.

Putting Pakistan, like many other countries surprisingly not including India, in a war zone despite safe arrival and departures of hundreds of ships in last two months and termination of commercial and cargo operations by a number of foreign airlines poses challenges for national exports. Many feel the foreign importers are using 'timely delivery' as a pretext to pressurize the local exporters to slash the prices. For many others, it is a genuine concern particularly with the nearing of the Christmas season which require advance planning from September onwards.

The negative impact is all too evident from the trickling of seafood, leather and value-added leather made-ups exports as well as the two-third reduction in the export-oriented small and medium enterprises hub of Sialkot housing hundreds of units engaged in the manufacture of surgical instruments, sports goods and cutlery. This has brought not only export orders to a trickle but also in drying up of fresh orders.

While textiles group, which make up 65 per cent of the total exports from the country, has been lucky enough to ward off the negative impact by limited removal of quota restrictions many other sectors have not been so lucky. However, the situation resulted in lay offs in the industry and we have to wait for at least another month to see any positive signs of the removal of restrictions. The Karachi Chamber of Commerce and Industry had expressed fear that the turmoil would cost the country between $ 1.5 billion to $ 2 billion during the current fiscal ending June 30 next year.

The slowdown of economic activities across the globe has also taken a toll on imports due to the drying up of the local markets as people inclined to buy only the necessities to save money for fear of hard times. The imports have also registered a substantial decline of 11 per cent since September 11.

A weak dollar, as evident, poses the risk to the cash flow situation and liquidity of the export-based industries particularly the small and medium enterprises. The strengthening of dollar this week with the unusual gaining of Rs 2.15 in a single day the open market in last month-and-half is welcomed by the exporters. More of a repeated performance would help instill further confidence.