Export silver linings

Many hopes were pinned on exports to help improve Pakistan’s trade deficit, especially in view of massive currency depreciation and export support package introduced in the latter half of FY19. The trade deficit did improve, although it took a sizeable dip in imports and not a jump in exports. The currency depreciation actually worked the other way in extremely competitive trade markets, despite much improved export quantities for most key categories.

The 1 percent year-on-year drop in exports is disappointing, but it has its fair share of silver linings. The value added segment of the textile sector has hit record highs in terms of quantity exported. The readymade garments with a 12 percent share in total exports have been recorded at an all time high, having grown by an unprecedented 32 percent year-on-year. Two other key textile export categories, cotton cloth and knitwear have also shown considerable double digit growth in volumetric exports.

Among food export items, Basmati rice has made a grand comeback, with the volumes standing at a six year high. Fruit exports have also shown good signs of recovery, standing at an all time high in quaintly terms. But all that comes down to little to nothing, as the other and equally important part of the equation, i.e. the pricing, was far from favourable.

The sharp exchange rate adjustment to the tune of 24 percent over previous year, meant threw was immense pressure on pricing, in what is a truly competitive field in international trade. All but one textile item faced some degree of decrease in unit prices, which was the highest in value added segments, with the highest increase in volumetric terms. The quantum of unit value dip in most cases was surprisingly similar to the quantum of volumetric increase. No wonder, the textile exports in FY19 remained a zero-sum game.

The export unit prices have shown strong correlation with both currency depreciation and oil prices. With the currency now believed to be close to equilibrium, one could expect the unit price slowdown to stop, if not revive to earlier levels. The positive correlation with oil price though will continue to pose questions, as short term oil price outlook gives bearish signals. That said, from both currency and oil price movements being unfavourable for export unit price at the moment, to be facing only one unfavorable variable, should offer some respite to export prices in the days to come.

What remains to be seen is the exporting sectors’ capacity to deal in larger quantities. Having had a relief in terms of energy prices for much of FY19, the relief has been somewhat reduced, after the imposition of GST on energy prices for zero-rated sectors, which is bound to raise costs and challenge competitiveness. All said, FY20 should be a better year for exports in value terms, and not only the volumes.