Ris­ing im­port bur­den

The Pak Banker - - FRONT PAGE -

One of the big­gest chal­lenges fac­ing the new gov­ern­ment is the ris­ing im­port bur­den which has put the ex­ter­nal sec­tor at risk. Some time back, in or­der to curb im­ports, the Fed­eral Board of Revenue had in­creased ad­di­tional cus­toms duty from one to two per­cent on im­port of goods in the month of May. The Board is­sued a new SRO to dou­ble the rate of ad­di­tional cus­toms duty on im­ported items. The in­crease in ad­di­tional cus­toms duty from 1 to 2 per­cent on im­ports across the board was meant to gen­er­ate around Rs 30 bil­lion in 2018-19.

Pak­istan's im­port-ex­port gap surged by nearly 35 per cent yearon-year to $20.202 bil­lion in the first eight months of the cur­rent fis­cal year. The trade deficit has been on an up­ward tra­jec­tory for many years ow­ing to the lib­er­al­i­sa­tion of the im­port regime some time back.In 2000-01, Pak­istan's trade deficit was $1.527bn, which rose to $22.159bn in 2014-15. The im­port bill was $45.826bn in 2014-15. The deficit stood at $2.807bn in Fe­bru­ary, a rise of 87.88pc from a year ago. It is es­ti­mated that if ex­ports do not rise and im­ports con­tinue to swell, the trade deficit will reach $28bn.

Im­ports are go­ing up and up. Ma­chin­ery im­ports, which con­sti­tuted 19 per­cent of to­tal im­ports in 7MFY16, grew by 42 per­cent year-on-year and stand at 24 per­cent of the to­tal im­port bill. The bulk of these im­ports are power gen­er­a­tion and elec­tri­cal ma­chin­ery that grew by 91 per­cent and 16 per­cent re­spec­tively. The im­port of tex­tile ma­chin­ery has also gone up. Con­struc­tion and min­ing ma­chin­ery im­ports have in­creased be­cause of greater in­fra­struc­ture de­mand. Food im­ports were up pri­mar­ily due to palm oil im­ported from In­done­sia and Malaysia. The sec­ond big­gest head in im­ports is oil which is 20 per­cent of to­tal im­ports now. Due to a rise in RNLG plants that the coun­try is build­ing, liq­ue­fied nat­u­ral gas im­ports will con­tinue to rise: they grew by 136 per­cent in 7MFY17. At the same time, the re­bound of oil prices will con­tinue to put pres­sure on the to­tal im­port bill.

In view of this there is an ur­gent need for the gov­ern­ment to adopt spe­cial mea­sures to curb im­ports, es­pe­cially those of lux­ury items. Re­cently, the au­thor­i­ties moved to im­pose reg­u­la­tory duty at the rates of five to thirty per­cent on the im­port of around 400 lux­ury items, which in­clude per­fumery, cos­met­ics, toi­let prepa­ra­tions, ar­ti­cles of leather, fab­rics, cloth­ing ac­ces­sories, air-con­di­tion­ing ma­chines, watches, fur­ni­ture, toys and video games, etc. Reg­u­la­tory duty has been im­posed, in ad­di­tion to cus­toms duty, sales tax and with­hold­ing tax, on the im­port of such items. Var­i­ous rates of cus­toms duty from 50% to 100% have been im­posed on im­port of cars and jeeps de­pend­ing upon en­gine ca­pac­ity.

The State Bank some time back di­rected banks to raise cash mar­gin for the im­port of non-es­sen­tial items to 100 per cent. This is an at­tempt to ease pres­sure on the coun­try's trade ac­counts due to a spike in the im­port bill on ac­count of the CPEC- in­duced cap­i­tal goods de­mand. A 100pc cash mar­gin will mod­er­ate im­ports of nonessen­tial items. The cash mar­gin re­quire­ments have been so framed as to con­tain the bur­geon­ing trade deficit and at the same time ac­com­mo­date the im­port of pro­duc­tive goods. The coun­try spent $6bn on auto and food item im­ports which are also in the said list. This means that goods worth about one fourth of the im­port bill will be di­rectly im­pacted. Ac­cord­ing to ex­perts, these mea­sures would go a long way to con­tain swelling im­ports.

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