EDITORIAL: Prime Minister Imran Khan has stated time and time again that his government inherited the highest-ever current account deficit of 20 billion dollars and the upfront extremely harsh contractionary monetary and fiscal policies successfully brought the deficit to manageable levels. No one can dispute this claim though the Prime Minister and his economic team have been silent on the cost of these measures notably stifling of the country’s productive sectors and propelling inflation into double digits that, in turn, impacted negatively on the pocketbooks of the people of this country.
Today imports have begun inching upward again subsequent to the easing of monetary and fiscal policies with the aim of minimizing the impact of the pandemic and one would urge the economic team to look at the import items now to determine whether any concomitant policy action can reverse the rising trend. Pakistan’s largest import items are grouped under petroleum group accounting for 13.9 billion dollars in fiscal year 2019, 9.2 billion dollars in 2020 (a decline in international prices due to a fall in global demand including in Pakistan) and in July-March 2021 total imports have risen to 6.67 billion dollars. Lower imports of items falling in this category is not an option in the short run as they constitute essential items, however they also account for a significant portion of the country’s taxes (from sales tax to petroleum levy). In the medium to the long run the government can set up refineries that would lower refined petroleum product imports while raising the relatively cheap crude imports.
The next highest import item fall under the category of machinery group. Components reveal that it is telecom sector that is a major importer accounting for 1.5 billion dollars July-March 2021 against 1.8 billion dollars in the comparable period of last year with mobile phones accounting for the bulk of imports. While India is one of the six largest mobile phone manufacturers in the world, Pakistan’s mobile industry produced 1.21 million phones in the first two months of 2021 however these were mainly assembled in Pakistan and one would hope that the government makes appropriate policy changes to encourage indigenous downstream industry. In other words, care must be taken to ensure that this industry does not go the same route as the car industry which continues to consist of assembly plants importing the bulk of the parts from the parent companies.
Food group forms the third largest import category. Policy decisions relating to three major components in this category can reduce the import bill. The largest import item under this category is palm oil/soya bean oil together accounting for nearly 1.8 billion dollars worth of imports July-March 2021 against 1.4 billion dollars in the comparable period of last year. There is a need for strengthening the local industry to enable it to meet domestic demand. Tea imports were 393 million dollars in July-March 2021 against 338 million dollars in the comparable period the year before. Recent studies indicate that around 64,000 hectares in Mansehra and Swat in KPK are suitable tea growing areas and there is a need to provide incentives to farmers to begin planting tea. Wheat and sugar have emerged as import items in the past two years and one would hope that these are red flags for the government to begin to formulate an agricultural policy that is designed to ensure self-sufficiency in these items. And what is equally disturbing is the fact that successive governments have encouraged sugarcane output at the cost of cotton which accounts for a rise in cotton imports (raw cotton imports rose to 1.4 billion dollars in July-March 2021 against 972.7 million dollars in the comparable period of last year).
A word of caution is in order: while higher domestic output would reduce imports yet care has to be taken when setting any support price and/or extending fiscal and monetary incentives that it does not lead to a lower cost than in neighbouring countries as that encourages smuggling across thousands of miles of our eastern and western borders with shortages occurring in this country and that taxes are not higher on any item relative to neighbouring countries for that would sound the death knell for our local industry.
Copyright Business Recorder, 2021