After showing cautious signs of recovery, foreign bill discounting has once again reversed trajectory. According to SBP’s monthly statistics of private sector finance, foreign bill discounting loans declined by two per cent on a month-on-month basis, recording an even steeper slowdown of four percent in dollar terms due to the fall in the exchange rate.

According to the central bank database, export bill discounting outstanding declined by $32 million between October and November 2023. Still, the month-end outstanding as of last calendar month is nevertheless a $100 million higher compared to the 12-month moving average (12MMA), which currently stands at $700 million. The decline suggests that although exporters have become uncertain about the future course of the exchange rate, they are yet to completely lose faith regarding the nascent signs of economic recovery.

Regular readers would recall that after declining by a massive $500 million between February and December 2022, credit offtake against foreign bill discounting lines had begun to climb up during calendar year 2023, with month-end outstanding rising from $617 million in January 2023 to $828 million by October end. But that recovery was largely driven by the return of stability in the foreign exchange market – at least the inter-bank market, more than a rise in nominal outstanding in Pak Rupee terms.

In fact, each time the month-on-month growth in foreign bill outstanding dithered during calendar year 2023; it coincided with a decline in month-end exchange rate. Meanwhile, loan outstanding in Pak Rupee terms grew significantly, rising by Rs 76 billion between January and October 2023, of which Rs 57 billion - or three-fourths of the growth – came from textile exporting segment.

Which means that November scorecard is the first-time during calendar year 2023 when credit outstanding against foreign bill discounting services available to exporters has declined both in Pak Rupee and US dollar terms. This is particularly pertinent considering that the bills discounted by commercial banks are denominated in foreign exchange terms, not Pak Rupee, against dollar-based invoices issued to foreign buyers of Pakistani exports. And that a decline in Pak Rupee terms – if not an isolated aberration – could potentially signal a decline in export volume. This may come as a surprise to many observers, considering the recent improvement in economic sentiments where many insist that economic contraction of the last two years has bottomed out, and that business activity – especially exports – are showing early signs of a strong recovery.

For at least the past 12 months, dollar realizations against Pakistan’s exports have averaged close to $2.4 billion per month. Recently however, sentiments created by the crackdown on currency speculation may have forced many export players to bring their realizations forward; as administrative measures seemed to indicate that the exchange rate depreciation had bottomed-out in the short term in the range of 280 – 285 per dollar. This spurred bill discounting in the near term, which reflected in monthly exports rising to $2.7 billion in October and November 2023.

However, now that the exuberance is over, it looks that monthly export performance will once again peter out, staying range bound in the near term. The export bill discounting trend during November 2023 also appears to validate this hypothesis, with weak signs of monthly export realizations breaking through the three billion dollars barrier.

With the era of heavy fiscal and monetary export-centric incentives over – along with the post-covid commodities demand boom – it appears unlikely that Pakistan’s goods export performance will have a turnaround moment. The worst may very well be behind us, but so might be the best. At least that’s the outlook for CY24 based on bill discounting trends.