Rupee devaluation detrimental for value added Textile exports

Karachi, May 17, 2019: Chairmen, Value Added Textile Export Associations declared the current over 3.6 percent devaluation of rupees against dollar in 24 hours is extremely disastrous for the nation stating that such exorbitant devaluation will increase cost of doing business and also open floodgates of inflation for the masses. Pakistan rupee has been devalued approx. 20.16 percent against dollar from 123.6 to 149.07 in just 9 months.

This statement jointly issued by Jawed Bilwani, Central Chairman, Pakistan Hosiery Manufacturers & Exporters Association (PHMA), Zubair Motiwala Chairman Council of All Pakistan Textile Associations (CAPTA), Rafiq Godil Chairman Pakistan Knitwear & Sweater Exporters Association (PAKSEA), Farrukh Maqbool Chairman Towel Manufacturers Association (TMA), Abdus Samad Chairman Pakistan Cloth Merchants Association (PCMA), Khawaja Usman Former Chairman Pakistan Cotton Fashion Apparel Manufacturers & Exporters Association (PCFA), Shaikh Muhammad Shafiq Former Chairman Pakistan Readymade Garments Manufacturers & Exporters Association (PRGMEA), Arif Lakhani Zonal Chairman All Pakistan Textile Processing Mills Association (APTMA).

They added that for the textile export sector, cotton yarn is available on international price therefore devaluation increases cotton and yarn price in rupees. Moreover, price of cotton yarn is cheaper in Bangladesh than Pakistan due to lower utilities cost. Most of the inputs are also imported such as dyes, parts, chemicals, petroleum products, accessories, packing materials etc. As such, due to devaluation, their cost will also increase, resultantly increasing the cost of exportable goods. It will have negative impact on exports and will lead to massive inflation which resulting to anarchy.

This move of devaluation will make commodities costlier and manufacturing sector will face a very difficult time. Under the current situation, industry will have only two options, to either close down or increase price of their manufactured goods further and become more uncompetitive in the international market. They added the profit margin of Value Added Textile Exporters is hardly 3 percent to 4 percent.

Exporters of Raw Materials – Cotton & Cotton Yarn only get the benefits of devaluation while on the other hand devaluation brings no benefit to the Value Added Textile Export Sector. During FY 2017-18, exports of Value Added Textile Sector is the US $12.06 billion while exports of Textile Raw Materials are the US $1.46 billion.

Devaluation of currency can only help one time for the non-realization of export proceeds or consignments in the pipeline of Value Added Textile Export Sector, otherwise, foreign buyers demand a discount due to devaluing of Pakistani currency. Previously, when Government depreciated the rupee by 5 percent, Foreign buyers demanded discounts for new orders due to devaluation and took 50 percent of advantage from the exporters.

Due to uncertainty and recurring fluctuations rupee-dollar parity, both buyers and exporters are reluctant for new orders as both are uncertain about the cost of the product. If the devaluation of the currency is indeed necessary why the stakeholders are not taken in the loop and why can’t the devaluation be more subtle versus such onetime shocks of 3 percent – 4 percent devaluation in a single day, not allowing for any kind of planning and discussion with the buyers. 

While in the instant case if we calculate the impact of 5 percent rupee depreciation value on the imported raw material prices which will go up by approx. 50 percent due to rupee-dollar parity, the difference shall come 2.5 percent out of which the buyers will take away the advantage of 2.5 percent. Rupee depreciation will also bring an upshot in inflation and the workers will demand salary enhancement. Top Management in the Value Added Textile Sector have now also started demanding to fix their salaries in dollar terms.

Such state of affairs when the dollar is appreciating and banks are also reluctant to fix dollar rates, the Textile Exporters will be aggrieved in case of BMR because some machineries are delivered in 6 to 8 months and cost of machinery is increased to 20 percent during the period.

They articulated on one hand Government wants to enhance the exports while on other hand concrete measures have not been taken to control the depreciation of rupee. The confidence of Value Added Textile Exporters have been shaken and needs to be restored. If the Government gives genuine considerations to the proposals of exporters and addressing all their problems and issues, a breakthrough in the exports can be easily achieved whereby we can be unsurpassed to go beyond the last highest exports our country had previously. They termed the exports as the lifeline to strengthen the national economy.

Chairmen, Value Added Textile Exporters' Associations demanded the government to immediately call the stakeholders to devise a joint strategy to control the current situation in the currency market.

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