It seemed that the tough times were over. Just two months ago, foreign bill discounting transactions at commercial banks recorded a stellar rise, increasing by a never-before-seen $71 million between May and June 2023 – heralding the return of export competitiveness. Alas’ it was not meant to be.

According to the central bank’s monthly reporting, that recovery proved to be a complete mirage. Between June and Aug 2023, foreign bill discounting (outstanding) by private sector exporters has dropped by a massive $38 million, bringing the bills outstanding below May 2023 levels. It seemed that(some) exporters toyed with the idea of flocking back to Pak Rupee for a little while, but then quickly changed their mind.

At that time, this section had posited that “bill discounting had picked up pace in a month when restoration of IMF no longer looked possible, with all faith lost in Pak Rupee in the near-term. By the time IMF’s SLA was announced, banking operations had been suspended for the remainder of the month (of June 2023) in Pakistan due to Eid holidays, meaning that exporters could not have seen the last-minute program coming (just like every other commentator in the country). Thus, restoration of Fund’s program could not have precipitated the reversal in the freefall of bill discounting transactions, which had declined by half or nearly half a billion dollars between February 2022 and May 2023”.

If the IMF program had not spurred exporter’s interest in selling their bills in forward, then what did? One theory could be that exports had bottomed out, and the monthly rise witnessed in bill discounting transactions during June 2023 simply indicated that the worst was behind us. SBP’s export realization data certainly seems to indicate so. Since bill discounting is a leading indicator of export performance, the 11 percent rise in monthly bill discounting outstanding between May and June 2023 has been followed by a rise in monthly export proceeds by August 2023, with export realization breaching $2.4 billion in Aug 2023 as per SBP, up 14 percent from the bottom of $2.1 billion recorded in June 2023.

So far so good. But the latest data indicates that the bill discounting transactions are once again in a freefall. The decline witnessed over the last two months should now indicate that export proceeds shall fall in the coming months, all else held constant. Exporters’ loss of faith in the currency during this time isn’t all that surprising either, considering it came on the back of Pak Rupee losing its bearings during Aug 2023, with value declining by as much as 8 – 10 percent in open market.

But now that severe administrative action has been taken against speculators and the State has clamped down on hawala/hundi operations with all its might, do exporters have found cause to love Rupee again? With the annual inflation forecast raised to 25 percent and policy rate reverting to negative territory, exporters might shy away from burning their hands at leveraged exports again. Whether administrative action will deliver or not, it might be too early to tell. Data for foreign bill discounting transactions during Sep 2023 will certainly be an indicator.