Devaluation mantra

LAHORE – It appears that the constant decline in the value of rupees is part and parcel of a bigger plan to boost exports while curbing imports. It is possible that this is why the central bank has not made any efforts to stop the decline.

You may have noticed that imports remain much higher than Pakistani exports, which puts pressure on the rupee. The textile exports which make up 60 percent of the total are under pressure on two accounts.

First, the cost of doing businesses is high. Especially the rapid rise in the power and energy tariff. These two inputs represent the major costs of basic textile units which provide the basic raw material to the value added garment and knitwear industries.

The impact of electricity tariffs on value-added units are relatively small. According to the IMF Agreement, the government has committed to not give subsidies to exporting sector. This includes energy and power subsidies which were available to the major exporting sectors until June 2023.

However, the devaluation of rupee gives exporters, particularly textile exporters’ an advantage in labour cost. All inputs used in exports are measured in dollars. The average spinning mill has 600 employees while the average knitwear or readymade garment unit has 1,500-2,00 workers.

The dollar fluctuated between Rs285 and Rs32,000 in June 2023 when the minimum wage in Pakistan increased to Rs32,000 a month. The rate at which Pakistani exporters paid their employees $112.28 was a shocking figure.

They are now paying a minimum wage of 106.6 per employee, as the dollar rate is now Rs300. The dollar rate has risen to Rs300, and they are paying a minimum wage equivalent to 106.6 per worker.

A spinning mill employing 600 workers can save Rs. 1,02 million per month in salary. An apparel unit with 1,500 workers would be saving Rs2.55 million in worker’s salary head per month.

According to some experts, the rupee is allowed to depreciate as the savings of Rs1million in the spinning mills’ salary section are not enough to offset the increase in power tariff.

Savings of Rs 2,55 million per month are enough to restore the competitiveness of the value-added industry.

According to some, in about a month the rupee is expected to depreciate from Rs350 to Rs315 and then settle down at Rs350 to the greenback before the end of the fiscal year.

In dollars, the monthly wage of workers would be $101.5 if the dollar value drops to Rs315 or $91.2 if it falls to Rs350. The textile sector would be able to save enough in both scenarios to cover the increase in power and energy prices.

The dollar’s value will also significantly reduce imports. The Pakistani consumer would not be able afford to buy imported goods.

Even the middle class, which is affluent, would stop buying imported products. Even with the current government taxes, imported goods are extremely expensive. Prices would rise further with the decline of rupee value.

There is no other way, in our current precarious economic state, to increase exports and reduce imports. Local industry could benefit and jobs may be created. No doubt, the recent policy will bring much misery to many people. However, most of us will learn how important it is to live within your means.