Pakistani expats can cash in on rupee devaluation

Islamabad - How will SBP's move affect business in banking sector?

Contrary to the impression about a slowdown of the Pakistani economy, business is expanding on the back of rising bank deposits, growing credit off-take and rising bank profits - but everyone will have to watch out the impact of last week's devaluation of the rupee.
The rupee was devalued by around 5 per cent on March 20. It followed a similar 4.9-5 per cent in December 2017.
Senior bankers are not fretful of its impact. A senior manger of Standard Charted said the devaluation will attract more home remittances because Pakistanis will get more cash for the money they send home.
"At the same time the hundi and hawala business will be curtailed," he said.
Pakistani commercial banks and foreign lenders are setting their sights on a "significant rise in home remittances, and more and larger transactions, leading to higher profits for banks", bankers say. The 5 per cent devaluation of the rupee in December is already helping Pakistan. The Ministry of Finance (MoF) and the State Bank of Pakistan (SBP) confirm that exports in the first eight months - July-February of fiscal year 2017-18 - rose 11 per cent to $19.4 billion as compared to the same period in 2016-17.
Meanwhile, imports rose 15 per cent to $42.6 billion in the same period. The current account deficit (CAD) in the same period widened by 50 per cent to $10.286 billion, up from $7.216 billion during the corresponding 8 months of 2016-17.
"If devaluation had not taken place, the CAD would have been much more," says an MoF spokesman.
Despite this being the state of the CAD, bankers insist the ongoing plus-points of the economy, projected larger business transactions and a greater number of forex transactions will continue to enhance profitability.
"Profitability is projected to go up from 14 per cent in outgoing 2016-17 to 20 per cent in the current 2017-18," the SBP says in its latest review of banking sector performance. However, actual profits will be known only after June 30, when the current fiscal year closes. The decline of the rupee is of interest to overseas Pakistanis who will get more cash in exchange both in the interbank and open markets, and help reducing the illegal hundi and hawala business, which has also been aiding the illegal outflow of forex resources.
Exporters, including the textile sector, will be able to compete better in the international market and help reduce the trade deficit. More than 60 per cent of Pakistani exports comprise textiles, textile goods and the increasingly getting popular Pakistani fashion-ware, in which Dubai is a big market for it.
The Pakistani currency plunged to Rs115.5 to the greenback on March 20 from Rs110.5 in early trading on March 19. Among the closing rates on March 20:
. The dollar was Rs114.00 for buying and Rs116 for selling on the interbank market. The greenback was trading in the open market at Rs115.50 for buying and selling.
. The UAE dirham's interbank selling rate was Rs30.03 and buying at Rs30.08. In the open market, it was Rs30.35 for buying and Rs30.50 for selling.
. The Saudi riyal's interbank rate for buying was Rs29.41 and Rs29.47 for selling. In the open market, the buying rate was 29.95 and selling was Rs30.15.
. The British pound, in the interbank market, was 154.81 for buying and Rs155.09 for selling. In the open market, the buying rate was Rs158.00, and for selling Rs159.
. The euro's interbank rate was Rs136.14 for buying and Rs136.39 for selling. In the open market, it was Rs138 for buying and Rs139 for selling.
Abid Qamar, spokesman of the SBP, told Khaleej Times that the fall of the rupee is market-driven and the SBP has nothing to do with it. However, money changers and the open market insist that "the rupee came down, as the SBP withdrew its support for the Pakistani currency, which was being done through regularly injecting forex into the banks and money market".
But how did the current banking and economic scene look just before the rupee's fall? A buoyant SBP review last week reported commercial banks' credit off-take is rapidly rising; deposits are up; inflation is nearly static at around 4-4.2 per cent; exports are rising after staying stagnant for 4 years; amd imports, especially those of Western-style packaged food is going up on the back of rising personal income of the middle and the upper middle class. Auto sales are up 23 per cent, feeding the upper and the middle class and confirming a 9.4 per cent year-on-year growth of the large-scale manufacturing output.
While deciding on forex rates, the government of Pakistan keeps in its view the country's business interests, how it will help overseas Pakistanis and above all its relations with brotherly countries, particularly Dubai and the UAE, as well as its old business partners like the UK, the EU and the US.
Prime Minister Nawaz Sharif's questionable removal on July 28 did adversely impact the economy, but it is now looking up. The stock market, the PSX-100 index, which was at around 54,000 points on July 28, lost some 20,000 points and came down to 34,000 points in recent months, but is moving up again; it is now at 44,500 points.
Prime Minister Shahid Khaqan Abbasi told Khaleej Times last week: "I hope to present the national budget for 2018-19 on April 21."
"I promise to give the nation, and more particularly our business community, a string of goodies and incentives, to push the economy still higher. This has been the key achievement of our Pakistan Muslim League since our government came into in 2013. And we will continue marching on that path."
The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.

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