KARACHI, Nov 14: Exporters sold $135 million export bills in advance during the first quarter (July-September) of this fiscal year. In the comparable period of the last fiscal year they had discounted only $7 million bills in advance.

Exporters normally discount their export bills in advance when they need rupee liquidity to meet their day to day expenses — and they do it at times when they feel that the local currency is stable — and not going to fall in the short-term.

But senior bankers warn that this huge discounting of export bills means the inter-bank market will receive lesser inflows of foreign exchange through exports when the export bills would actually mature. “It is all about timing,” says treasurer of a foreign bank. “If an exporter sells his proceeds in advance it means when his export bills will mature the system will not receive foreign currency inflows.”

Senior bankers say discounting of export bills continued also through October and is still going on. When seen in this backdrop, the latest stride of the rupee against the US dollar presents little reason to rejoice. Because the rupee is rising due to advance selling of export bills. But sources close to the central bank say it is the other way round.

“Exporters are selling export bills in advance because they know that there is enough inflow (of foreign currencies) in the inter-bank market and that the dollar may fall further,” said a source close to the SBP. The US dollar after remaining almost unchanged against the rupee in July-September 2003 started falling in October. From October 1 till date the greenback has lost 51 paisa or one per cent of its value against the rupee, coming down from Rs57.87 a dollar at the beginning of October to Rs57.29 on Friday.

On Friday alone the dollar shed seven paisa against the rupee in the inter-bank market falling from Rs57.36 to Rs57.29. Bankers said the State Bank witnessed the fall of the dollar calmly and did not intervene in the market to prop it up. The SBP sources said the central bank had decided in principle to let the dollar shed some of its extra weight.

“There has been enough inflows from the IFIs (international financial institutions) as well as from exporters and expatriate Pakistanis,” said a source close to the SBP, justifying the fall of the dollar. He said the dollar might touch Rs57 level shortly.

The source added that the rupee was faring well in the inter-bank market also because the importers were not crazy for dollar buying even at this level primarily because “they know that the rupee is still undervalued.” (What could be added to this statement is the fact that even internationally the dollar has been on the fall for quite some time against all major currencies on strong indications that the process of recovery of the US economy is slowing down).

Policymakers have been saying that the actual worth of the dollar against the rupee is much less than what it is now because the central bank has been supporting the US unit to pamper the exporters competitiveness. But the central bank has a delicate task of keeping an equilibrium in its desire to help exporters and the need to keep the rupee value of the external debt down.

When it supports the dollar the exporters get benefited but if it allows the dollar to shed say one rupee it reduces the rupee value of the external debt by Rs33 billion. In other words it saves the nation Rs33 billion for the country owes $33 billion external loans.

RUPEE STRENGTH: That inflows continue from IFIs is a known fact. On Thursday, Pakistan received $245 million as seventh and eighth tranches of the $1.5 billion poverty reduction and growth facility of the IMF. The country has also been receiving IMF tranches in the past as well as financing from other multilateral lending agencies like the World Bank and the Asian Development Bank for pursuing reforms in the financial and social sectors. And it has also been receiving multi-million dollar compensation packages from the US for providing it logistic support in its “war against terrorism” in this region.

Exports have also been on the rise. In the first four months of this fiscal year, Pakistan’s export earning stood at $3.974 billion, up 14.2 per cent over its export earning in the comparable period last year. This growth in the exports was modestly higher than the growth in imports during the same period. Pakistan had to spend $4.283 billion on imports in July-October 2003, 13 per cent more than its import bill in a year-ago period.

But so far expatriate Pakistanis’s remittances are concerned, these have been on the fall. In July-September this year, the remittances fell to $890.3 million, down $152.7 million or 14.6 per cent than the remittances received in a year-ago period. Top bankers say that workers’ remittances may continue the downward trend. The State Bank also realizes this. That is why SBP Governor Dr Ishrat Husain said at a press conference last week that the government was projecting total workers’ remittances at $3.6 billion for the current fiscal year, down from $4.2 billion in FY02.

But this much fall in the remittances may not have an overall negative impact on the inflow of foreign exchange because the country is set to receive constant inflows from the IFIs as well as from the US in recognition of its support for “the war against terrorism.”

Inflows in the form of foreign investment, however, seem to be faltering. In the first three months of this fiscal year, the country received $89 million in foreign investment (including both direct and portfolio investment), down from $167 million in a year-ago period.

Some bankers say the SBP is allowing the dollar to fall during November and through the first two weeks of December because it anticipates huge outflows of foreign exchange at the year-end in the shape of corporate debt payments as well as government debt servicing. They also say that pre-payment of external loans by the government will also make the dollar dearer when it starts. “So the central bank is making room for all that,” said treasurer of a foreign bank.

The government says it will use the foreign exchange raised through its $500 million euro bond for pre-paying external loans. Pakistan is set to retire before time $1.07 billion loans of the IMF, the World Bank and the Asian Development Bank during this fiscal year. The euro bonds are likely to be launched early next year.