- Finance minister says rupee's movement determined by market dynamics and SBP did not intervene
- Says import ban on CBUs of cars, mobiles and home appliances will remain in place till September 2022
Finance Minister Miftah Ismail said on Saturday that the government only had a few options at its disposal to avert a default, and it resorted to curbing imports to minimise the trade deficit and control the outflow of dollars.
Speaking to traders at the Karachi Chamber of Commerce and Industry (KCCI), he said the government could increase the interest rate by 200-300 basis points, and that would trigger a contraction in imports as well. However, “we are trying to curb imports through suspension of inward shipments of a few product categories”.
According to him, this move would minimise the impact faced by the public. He highlighted that the government had the option to print more money but it would trigger a fresh wave of inflation, which is already at a 14-year high.
He further added that dollar was moving as per the demand and supply dynamics and the State Bank of Pakistan (SBP) had not intervened in the currency market. The rupee has seen an extremely volatile ride in recent weeks, closing at an all-time low of 239.94 on July 28 before appreciating nearly 7% in the next six sessions.
As authorities moved to curb imports, many have raised the question if suppressing inward shipments would also reduce tax collection.
“The Federal Board of Revenue (FBR) chairman is monitoring tax collection every day and he is concerned about the drop in customs duty collection as a result of contraction in imports however, we are ready to face that,” he said.
“Import ban on CBUs of cars, mobiles and home appliances will remain in place till September 2022.”
Citing that businessmen were recommending the government to close down all exchange companies to stablise the dollar, he pointed out that it would trigger unemployment.
Currently, exchange companies are surrendering dollars to the inter-bank market and the SBP on a daily basis and Pakistan cannot run without such firms, he said. Moreover, Miftah noted that importers were also helping the economy by paying customs duty.
“We know importers will suffer from government’s decision to suspend shipments of few items but this move is vital to save Pakistan,” the finance minister said.
He lamented that Pakistan’s economy always relied on import-based growth and stressed that import substitution model was impractical for it.
Developed countries have grown through export led growth, however, Pakistan’s exports have risen a mere $5.5 billion in the last 11 years, he lamented.
“Our private sector saving is equal to private sector investment so government cannot take money from firms to fund the budget deficit,” the finance minister regretted.
He said that Pakistan and Sri Lanka announced fuel subsidy in February 2022, however, Sri Lanka did not back down from its decision and defaulted.
“We reversed the oil price subsidy and averted the threat of default,” he said. “Bangladesh has also announced a steep increase in petrol prices as the nation is approaching the International Monetary Fund for funding.”
Talking about the reversal of fixed tax regime, he admitted that before imposing the levy, he failed to take into account the small scale shops such as pan and cigarette kiosks.
“It was my mistake and if the government had not reversed the fix tax regime, small scale shops would have shut down,” the finance minister said.
While speaking at the Pakistan Stock Exchange (PSX) on Friday, Miftah said he saw direct economic fundamentals affecting the currency.
He said imports of $7.7 billion against $2.9 billion in exports in one month would certainly add pressure on the rupee.
He added that Pakistan witnessed a trade deficit of $48.7 billion in the previous fiscal year, and an ‘unsustainable’ current account deficit of nearly $18 billion.
“No country can sustain such current account deficits,” he stressed.