Mettis Global News
Mettis Global News
Mettis Global News
Mettis Global News

Trending :

Import curtailment leads to a perfect doom loop: Atif Mian

Import curtailment leads to a perfect doom loop: Atif Mian
Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

January 20, 2023 (MLN): Import curtailment, the most famous and traditional administrative method to address the balance of payment crises leads the country into a vicious cycle of anomalies, Atif Mian, a renowned Pakistan-US Economist said on Friday.

In a series of tweets, he explained that how the government’s administrative policies end up resulting in even greater disaster.

“When you try to cut imports through administrative restrictions, you essentially open multiple auction markets where some bureaucrat decides what is “essential” and what is not,” he added.

He termed these policies are the recipe for corruption and for gatekeepers to get rich quickly. Adding this, he went on to say, “But let’s leave that aside, the greater cost is economic.”

A restriction on imports, even with the most pious of bureaucrats, will inevitably strike at the heart of production networks.

For example, if an exporter cannot import raw material, or an intermediate input for production – the entire export chain will break down. Economists have carefully looked at the multiplier effects of disruptions in these production networks, and found them to be quite large, he noted.

Import curtailment further slowdown the economy as most of the raw materials cannot be imported which will further pressure the balance of payment as exports will start drifting down.

Recall that the original problem was deficits, deficits in the balance of payment, but also deficits on the fiscal side – and very large deficits.

So, when growth shrinks and deficits rise, the ugly head of inflation starts rising.

Why government opts for import curtailment as an administrative measure?

The import-curtailing administrative actions were deemed “necessary” because the government was afraid to devalue the currency.

As a result, the economy endures all of the above-mentioned problems while having a large black market exchange rate premium.

“Every investor knows gov cannot sustain the unsustainable, and eventually exchange rate will snap. So, in anticipation, FDI dries up, domestic investment dries up, there is capital flight, there is hoarding of dollars, domestic liquidity dries up,” he highlighted.

So, a policy that started with “plugging an accounting hole”, ends up doing very serious – and totally avoidable – damage to the economy.

Copyright Mettis Link News

Posted on: 2023-01-20T17:14:01+05:00