Amir Khan

In a surprising turn of events, Pakistan's foreign bill discounting, which showed signs of recovery, has once again taken a downward trajectory. As per the State Bank of Pakistan's (SBP) latest monthly statistics on private sector finance, foreign bill discounting loans have declined 2% month on month. In dollar terms, this decline is even more pronounced, reaching 4% due to the fall in the exchange rate. The central bank's database reveals that the outstanding export bill discounting has decreased by $32 million between October and November 2023. Despite this decline, the month-end outstanding figure for the last calendar month is $100 million higher than the 12-month moving average, currently standing at $700 million. Talking to WealthPK, Javed Iqbal, a Fulbright International Economics scholar, pointed out that this decrease suggested that exporters were becoming uncertain about the future exchange rate trends, though they had not entirely lost confidence in the nascent signs of economic recovery. “November scorecard marks the first time in the calendar year 2023 that credit outstanding against foreign bill discounting services available to exporters has declined in both Pak rupee and US dollar terms,” he added. He emphasised that this was noteworthy because the bills discounted by commercial banks were denominated in foreign exchange terms, not local currency, against dollar-based invoices issued to foreign buyers of Pakistani exports.

“A decline in Pak rupee terms could potentially signal a decrease in export volume, contrary to the optimistic sentiment prevailing in recent economic discussions.” “Over the past 12 months, dollar realisations against Pakistan's exports have averaged around $2.4 billion per month. However, recent developments, including the crackdown on currency speculation, may have prompted export players to accelerate their realisations,” he pointed out. Javed Iqbal said administrative measures indicated that the exchange rate depreciation had stabilised in the short-term, prompting bill discounting and resulting in monthly exports rising to $2.7 billion in October and November 2023. He highlighted that as the initial enthusiasm wanes, it appears that monthly export performance is set to plateau in the near term. “The export bill discounting trend in November 2023 seems to support this hypothesis, showing weak signs of monthly export realisations breaking through the three-billion-dollar barrier.” The Fulbright scholar concluded that the era of vigorous fiscal and as monetary export-centric incentives came to an end and the post-Covid-19 commodities demand boom faded, the likelihood of a turnaround moment in Pakistan's goods export performance for CY24 seemed improbable. “While the worst may be behind, so might be the best, shaping the outlook for CY24 based on bill discounting trends.”

Credit: INP-WealthPk