*ISLAMABAD – Pakistan’s trade deficit with China may worsen as Beijing hadsignificantly devalued its currency.*
The recent currency devaluation by China, which has brought theyuan-dollar parity to the lowest level since 2008, as part of its effortsto offset the impact of its tariff war with the United States, doesn’taugur well for Pakistan.
The yuan’s sharp devaluation means that, all else equal, Pakistan’s exportsto China will become less competitive, while imports from China will becomecheaper. The devaluation, combined with slowdown of the Chinese economy, islikely to exacerbate Pakistan’s trade imbalance with its single largesttrading partner.
Exchange rate movements by themselves have a limited impact oncompetitiveness, which is essentially a function of productivity of thefactors of production and technological and managerial efficiency withwhich the resources are combined. In the absence of productivity andefficiency, currency depreciation or devaluation normally doesn’tsignificantly shore up exports.
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Thus during FY19, the rupee was allowed to shed its value drastically butexports remained stagnant.
