PKR devaluation not led to phenomenal export growth: Ishrat

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SOURCEBusiness Recorder
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Prime Minister Imran Khan”s aide Dr. Ishrat Hussain is said to have stated that no phenomenal increase in exports has been witnessed despite rupee devaluation, well-informed sources in Finance Ministry told Business Recorder.

The country”s exports are showing about 2.5 per cent growth during the first seven months (July-Jan) 2018-19 which is a serious concern for the country. However, reasonable reduction is expected in imports due to which trade deficit will reduce by about $ 1 billion in January 2019 as compared to January 2018. Pakistan Bureau of Statistics (PBS) will release provisional trade figures on Monday (today).

Another aide of Prime Minister, Abdul Razak Dawood hinted that exports will cross $ 25 billion mark which appears to be very difficult without including defence exports.

The sources said at a recent meeting held in Finance Ministry, Finance Minister, Asad Umar expressed the view that fiscal authorities would need to keep a close watch on the budget deficit and government borrowing. Focus on improving revenue performance must be maintained.

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The moderate growth in exports is encouraging, however further efforts are needed to narrow the trade gap. Dr. Ishrat Hussain, Adviser to the Prime Minister / former Governor State Bank of Pakistan elaborated that despite devaluation of rupee there is no phenomenal increase in exports as foreign clients of Pakistani exporters demand enhanced rebate and thus the harvest of devaluation could not be reaped.

Also Read: THE RUPEE: rates firm

Governor SBP, Tariq Bajwa, added that devaluation has proved fruitful in curtailing the size of imports. He emphasized that SBP is vigilant with regards to depreciation of rupee and believes that flexible exchange rate is the only means to help the rupee adjust to its real market value.

The meeting”s participants appreciated the authorities” adjustment plan for fiscal consolidation. The impact of fiscal consolidation measures implemented in recent months would be visible from the second quarter of the current financial year. This consolidation is an important element of a homegrown adjustment plan and will play an integral role in ensuring economic stability. The need for continued effort to ensure revenue generation and expenditure controls was emphasized in the meeting. As far as the financing of the fiscal deficit is concerned, the Board discussed the inflationary and monetary impacts of reliance on SBP financing during the current financial year.

The meeting was apprised that current account is visibly responding to the measures taken since January, 2018. In the first four months, of current financial year, non-oil imports witnessed a decline of 4% compared to high growth of 25% over the same period of last year. Remittances have recorded a substantial growth in FY19, while exports have shown growth of 4%.

On the exchange rate front, the meeting discussed the volatility in the PKR parity. The participants maintained that recent developments are mainly explained by market demand-supply gap of dollar liquidity on the one hand and more underlying structural impediments on the other. In principle, the parity should be at their competitiveness-enhancing levels. Accordingly, after the latest adjustments, it is now more reflective of economy”s medium-term needs and market conditions.

The participants also anticipated that the short-term conditions on the exchange rate front are likely to normalize. Particularly, availability of deferred oil facilities and the recent decline in the international oil prices is expected to reduce pressures on Pakistan foreign exchange market in the near-term. Moreover, the bilateral flows would close the financing gap for FY19. These positive developments will build up forex reserves in the coming months.

On changes in monetary policy, the meeting argued that the stance is appropriate given the projections for inflation in FY19 and FY20. The real interest rates are significantly positive and would help manage aggregate demand and reduce output gap closer to sustainable levels.

(This news/article originally appeared in Business Recorder on February 11th, 2019)

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