@FT reports Pakistan's worsening economic situation "Pakistan's rupee collapses rapidly as fears of default intensify." [Pakistan's rupee falls fast as default fears intensify – FT]. A light in the dark: " Exports to Italy and remittances to Pakistan has crossed $2b, mainly in the sectors of food processing, chemicals, construction and leather, recording the highest annual growth ever" [Times Pakistan’s earns $2b from Italy in exports and remittances in FY22 – Daily Times]
Pakistan's currency entered its worst week in more than two decades, reflecting investors' concerns that the country risks following Sri Lanka to become the next emerging economy defaulting on foreign repayments.
The nearly 7 percent slump in pakistan's rupee from Rs226 to the dollar on Thursday marked the latest setback for the currency, which has fallen sharply this year. If there were no recovery on Friday, it would be the sharpest weekly decline in the rupee since November 1998.
The latest picture reflects growing concerns that the disbursement of a $1.2 billion loan from the IMF agreed last week may not be enough to avoid a balance of payments crisis.
Pakistani bonds were among the worst performers in emerging markets this year.
Sri Lanka's fall was one of the most obvious manifestations of wider fragility in emerging markets, which are suffering from increased risk aversion among investors and a rise in commodity prices and interest rates. However, Pakistan's larger population, strategic location and nuclear weapons status mean that a financial crisis would have more serious implications.
Fitch Ratings this week downgraded its domestic outlook to negative from stable, noting what it called a "significant deterioration in Pakistan's external liquidity position and financing conditions" this year. The rating agency said the central bank's forex reserves had fallen to about $10 billion by June 2022, down from $16 billion the previous year and equivalent to just over a month of current external payments.
A lifeline is the exports and remittances of Pakistani workers from abroad.
Pakistan's non-textile exports grew 25.85% year-on-year to $12.46 billion in 2021-22 outgoing due to a partial recovery in international orders and government support schemes.
In Fiscal Year 2021, three sectors – leather clothing, surgical instruments and engineering items – maintained export revenue growth despite lockdowns in many countries.
In this context, exports to Italy and remittances to Pakistan exceeded 2 billion dollars, recording the highest annual growth ever in which both sectors recorded the highest growth of any potential market.
Posting multiple records of growth, Pakistan’searnings from Italy in exports and remittances crossed $ 2b in Financial Year 2021-2022. A substantial growth in Foreign Direct Investment (FDI) from Italy was also witnessed during the record-breaking year, said a press statement issued here. Italy became the $7b export country for Pakistan in the world during the year with a record growth of export volume to $ 1146 million, while the remittances from Italy were also on the path to touch billion Dollars soon with a total of $ 857 million during the year. June 2022 also set the record for highest export volume ever to Italy in a single month crossing $ 144 million. Italy posted the highest growth both in workers remittances among all countries with high numbers of Pakistan diaspora and for exports among the top ten export destinations of Pakistan. This phenomenal growth in exports and remittances has come at a time when European economies in general and Italian economy in particular is slowing down and facing multiple challenges due to Ukraine war.
The exports to Italy of $1.15b in FY 2021-22 are 46pc higher than the previous year, while the remittances are 41 pc higher for the same period than the last year. While talking to media, Pakistan`s Ambassador to Italy, Jauhar Saleem paid glowing tributes to the Pakistani exporters for their initiative and hard work and to the Pakistani diaspora in Italy for standing by the country in a most challenging economic environment. He also shared that Pakistan had posted a record trade surplus of $ 573 million during the financial year 2021-22 which is 91pc higher than the previous year. According to the envoy, the value-added sectors were the main drivers of the exceptional export growth with exports of plastic products increasing by 208pc, sports goods 80pc, leather 42pc, home textiles 36pc and garments 35pc. The ambassador also shared that even as the pandemic hit global footwear market witnessed a contraction of shrank demand during the year, Pakistan’s exports of footwear to Italy increased by 19pc in the year and Italy has become the 3rd largest export destination for Pakistani footwear. Italy is also the 5th largest destination for Pakistani home textiles and ranks No.6 in garments exports.
Ambassador Saleem also informed that with the revival of market activities after removal of pandemic related restrictions in Italy, the Pakistan Embassy in Italy was further pacing up its activities to connect Pakistani businesses with Italian firms to sustain the exports and FDI growth. During the just concluded financial year, Pakistan received Italian investment in the sectors of food processing, chemicals, construction, leather, footwear, energy related equipment and IT. The Ambassador also shared that some of the recent joint ventures between leading Pakistani and Italian footwear firms were enabling technology transfer, international marketing skills and supply chain management to Pakistani firms. Moreover, Italy was also providing technical support in agriculture sector especially related to olive and olive products. Similarly, Italy is supporting the efforts for reduction of risks of Glacial Lake Outburst Floods (GLOF) and hydrogeological hazards in mountainous areas by establishing an evidence-based assessment and monitoring system for glaciers in Gilgit Baltistan. Ambassador Jauhar Saleem also informed the media that Italy has announced to allow 69,700 seasonal workers from selected countries in 2022 to come to Italy for work. Pakistan has already been included in the Italian Seasonal Work Visa Programme for 2022, which would offer many opportunities to our workers in agriculture and services sector to work in Italy. He added that Italian government has recently reduced the timelines for work visa processing which has been a long-standing demand from Pakistani workers. With the record increase in remittances during the last 3 years, Italy has become the largest contributor to this financial sector from the European Union. In 2021-22, around 25pc of the total Pakistan workers remittances from the EU came only from Italy. The envoy stated that the dynamic diaspora in Italy had helped post highest growth in workers remittances among all remittances destinations in the world making Italy Pakistan`s 8th largest destination for remittances globally and number one within the EU. Keeping in view the Italian labour market conditions and employment opportunities for Pakistani workers, the growth momentum would be maintained by connecting more Pakistani workers with Italian job market.
As for exports, however, some clouds are gathering on the horizon.
Rising inflation and declining purchasing power has led to a 25 to 30 percent drop in the supply of animal hides, sparking fear that the shortage might affect the rapidly growing local leather goods export industry.
Speaking with traders of the leather market, Profit learnt that the number of hides of sacrificial animals brought to the market declined approximately by 175,000 for cow hides and 250,000 for goat’s skins as compared to last year.
