It took 22 months for the stock of banking credit against foreign bill discounting schemes to double from its Covid bottom of $545 million to the peak of $1.1 billion. During the same period, Pakistan’s monthly export earnings (goods exports only) rose 2.5 times, from the Covid bottom of $1.26 billion to $3.1 billion. In the following 12 months, both monthly export earnings and credit against foreign bill discounting (FBP) cratered, with monthly exports witnessing a drop of $1 billion, and bill discounting of half a billion dollars. It seems that curve has once again shifted direction.

Over the last four months, the stock of foreign bill discounting loans has recovered by a remarkable $184 million, the second fastest increase outside of post-covid recovery. During the same time, monthly export earnings have also staged a turnaround, after bottoming out in June 2023. Between June and Oct 2023, monthly export earnings rose from $2.1 billion to $2.7 billion, closing in on the average export earnings level in the run up to April 2022 peak of $3.1 billion.

It is possible that the monthly export realization number during October 2023 is an aberration. Afterall, the reversal in Pak Rupee’s freefall depreciation after the administrative clampdown on currency exchanges and traders may have forced many exporters to conclude that the exchange rate had peaked, hastening realization. But evidence suggests that’s not the only driver.

First, monthly export realization rose by $305 million between Jul and Aug 2023, when the exchange rate was still very much in freefall breaching the PKR 300 per dollar barrier in the interbank market. Between Sep and Oct, monthly export earnings have risen by a similar amount. This was preceded by a rise of nearly $150 million in foreign bill discounting loans during Aug and Sep 2023, before the crackdown against currency speculation had begun.

Outstanding bill discounting loans – as this section has frequently pointed out is a leading indicator of export performance, which is what seems to have happened in this case. That exporters had hastened realization of their proceeds before the clampdown indicates that the turnaround in export performance appears to be driven by more than just the price of the dollar. Significantly, this turnaround has taken outside of usual seasonal upswings, such as during Ramzan or the Baqr-e-Eid/Hajj seasons.

More importantly, the last time monthly export earnings rose to these levels – along with the peaking of bill discounting transactions – the growth was in part driven by record commodity prices in the global economy due to the post-covid supply chain disturbances, global inflationary tailwinds, a commodity super cycle, and finally, the Russian invasion of Ukraine. Since then, global commodity prices have been trending downwards, with the World Bank’s commodity price index declining by 27 percent since April 2022 peak. PBS statistics also indicate that export volumes are in a consolidation phase, growing slowly but surely in key exporting segments such as rice, fiber, knitwear, home textiles, and garments etc.

But the most significant feature of this recovery in BR Research’s view is its timing. In the run up to FY22 export peak, exporting industries had enjoyed nearly two years of below 5 percent average mark up on banking credit, financed by the concessionary borrowing bonanza of Covid-era stimulus released by the central bank. Even more significantly, the five export-oriented industries also enjoyed subsidized tariffs on electricity and gas for over a year. As most readers would note, both the fiscal and monetary stimulus have now come to an end.

There is of course a risk of over-reading into the reversal in foreign bill discounting, which has admittedly witnessed an irregular recovery over the last few months. However, that this recovery is taking place at a time of record interest rates, high energy tariffs, and a slowdown in demand from top exporting destinations offers sincere hope.

Are Pakistan’s exports finally in an organic recovery phase, growing on the back of solid fundamentals?