July 19, 2023 (MLN): In the realm of economic discussions, it is not uncommon for certain aspects to outshine others. While the decline in Pakistan's export and remittance figures has seized noteworthy attention, little to nothing has been said about the substantial savings achieved through a smart import strategy executed by the current government.

There has been so much chaos on the economic and political fronts as within PDM, notable names were fighting, but their motto is one that aims to comply with IMF conditions to prevent Pakistan from default and ensure timely payments of credits.

The economy has been a mess due to political noise and noncompliance with IMF conditions by the previous government, which led to a longer-than-expected delay in the IMF tranche. It took almost a year to sign an SBA with IMF worth $3 billion on tighter conditions.

The situation was beyond worse, as the country reached on the brink of default with meager foreign exchange reserves. To prevent the country from possible default, two of the finance ministers of the current government, Miftah Ismail (Former Finance Minister), and Ishaq Dar (Sitting Finance Minister), took desperate measures in desperate times by curtailing imports. It resulted in a significant decline in imports, which helped narrow the trade deficit.

Throughout FY23, the import bill has registered a decline of around 31% to $55.33 billion compared to $80.136 billion from the same period of FY22, whereas exports recorded a drop of 12.73% to only $27.735 billion in the outgoing year when compared to $31.78 billion in FY22.

Both of the finance ministers received backlash from the importers. Concerns have been raised about overall economic growth, as these measures have resulted in a significant slowdown, with the growth rate declining from 6.1% to 0.29%. However, the economic managers argue that they had to take difficult decisions.

Without implementing these measures, the country would have faced the risk of default, and today we would be discussing the importance of such measures in the wake of default as the only option to save our country's economy.

It is worth noting that contrary to concerns, the decline in imports was observed in luxury goods, while the strict import control measures did not result in a scarcity of essential items, petroleum products, pharmaceutical raw materials, or other necessities.

This initiative intended to ensure that no exporter would be mired from fulfilling their orders due to a shortage of raw materials, thereby safeguarding the country's export potential.

Moreover, the decline in remittances by 13.6% can be attributed to multiple factors. The increase in the value of the dollar and inflation both contributed to a rise in living expenses for Pakistanis living abroad. Consequently, individuals sending money back home witnessed a decrease in the worth of their remittances. This decline was further worsened by the obtainability of more competitive rates in the informal Hawala system.

To curb illicit financial activities, the government should introduce robust administrative regulations. Those involved in such practices faced legal consequences, as the law tightened its grip on offenders.

In order to encourage legal channels for sending money to Pakistan, a scheme may be implemented wherein individuals utilizing banking channels received a bonus rate of 5 rupees for every dollar sent. 

All in all, the import strategy adopted under the former Finance Minister Miftah Ismail and sitting Finance Minister Ishaq Dar regime deserves recognition for its substantial impact on Pakistan's economic landscape. the significant reduction in imports by 31% marks a noteworthy achievement.

However, for stability, there is a need for the government to establish a one-window operation which will further boost the government's efforts. This will allow the government for comprehensive oversight, ensuring that companies adhere to a set of conditions i.e., tariffs, etc on export-based imports set by the government. It also eased an efficient evaluation of subsidies, utility benefits, bank export refinancing, and duty relief granted to specific companies.

With this system in place, the government will gain a deeper understanding of each sector's contribution to foreign exchange earnings, allowing them to focus their efforts on the most beneficial sectors.

Addressing the issue of misused subsidies should be another crucial aspect of the strategy. By inspecting the distribution of subsidies, the government would remove instances where companies solely benefited themselves, without considerable contributions to the country's export sector.

The excessive import of luxury goods on Pakistan's foreign exchange should strictly be prohibited, going forward.

The government should also foster import substitution through the enforcement of robust administrative power and comprehensive regulations should be implemented to combat under and over-invoicing practices.

By meticulously managing imports, promoting import substitution, and combating financial irregularities, the government should make strides toward achieving a balanced current account.

It is essential to consider all aspects of the economic equation before forming a comprehensive understanding of Pakistan's economic trajectory under this regime.

We should also tighten our belly and gradually remove all subsidies to the affordable class and give targeted subsidies for the marginalized segment of the economy as per IMF.

Safe to say that the substantial reduction in imports is an underreported achievement while discussions surrounding the decline in exports have dominated the narrative.

Copyright Mettis Link News

Posted on: 2023-07-19T14:42:08+05:00