The dollar drain

Almost a decade ago, we were recognised as an agrarian economy but the wrong policies of the successive governments forced the country to focus on imports to meet the local demand, even those commodities such as wheat, cotton and sugar, which were once available in abundance.

The situation has not only created a food security issue but is also draining the precious foreign exchange reserves of the country leading to higher import bill and a free-fall in the rupee.

Pakistan’s import bill registered a phenomenal growth of over 65 per cent during the first four months of the current fiscal year. It increased to $25.10 billion during July–October of the fiscal year 2021/22, compared with $15.176 billion in the corresponding period of the last fiscal year.

Similarly, the local currency fell to a historic low of Rs175.73 against the dollar on November 12, 2021. It recorded a decline of Rs18.19, or 11.54 per cent, from Rs157.54 on June 30, 2021 to Rs175.73 on November 13, 2021.

Besides, a critical analysis of import payments showed that Pakistan has become a dump yard of foreign products. The country’s import policy allowed all the imports except for those that are forbidden, contrabands or banned in the national interest or various international treaties.

The government on an urgent basis needs to review the import pattern not only to support the local currency but also to save the local industry, as well. The government may ban imports of those items that are manufactured or produced locally. Besides, the government may also ban those non-essential items that are a burden on the import bill.

A look into the import pattern showed that the country is spending huge foreign exchange on the import of food products, despite being an agriculture country. The food import bill increased to a staggering $3.127 billion during the first four months (July-October) of the fiscal year 2021/22. During the last nine years, the food bill registered a phenomenal growth of 106.54 per cent, compared with $1.51 billion in the same month of the fiscal year 2012/13.

During the period under review, the country’s spending of foreign exchange on commodities imports included wheat, $235 million; sugar, $150 million; pulses, $277 million; palm oil, $1.137 billion; tea, $188.3 million; and other food items $965 million.

The huge spending of foreign exchange may be curtailed by enhancing local produce of major crops such as wheat and sugar. In fact, by effective management, the country may be in a position to export the surplus, after meeting the requirement of the local demand.

In an important meeting on November 16, 2021, Prime Minister Imran Khan said: “We are focused on exploiting the full potential of agriculture sector. Helping the farmers increase their yield through better crop growing plans, provision of quality inputs, availability of standardised mechanisation tools and easy access to agriculture financing is our priority, in this regard.”

Agriculture is the lifeline of Pakistan’s economy accounting for 19.5 per cent of the gross domestic product, employing 42.3 per cent of the labour force and providing raw material for several value-added sectors.

The production of wheat between 2014/15 and 2019/20 was almost stagnant from 25.08 million tonnes to 25.25 million tonnes. The production of sugarcane during the period under review slightly increased to 66.38 million tonnes from 62.82 million tonnes. However, attractive support prices announced by the present government and growth in domestic demand resulted in bumper crop of sugarcane to an estimated 81 million tonnes for the fiscal year 2020/21.

Similarly, the wheat crop also increased to 27.29 million tonnes during the last fiscal year. The improved output in both the major crops may reduce the food bill in the coming months. However, it will depend on managing the supply chain and ensuring the availability in the local market.

Another major crop, which needs an urgent attention is cotton. The import of raw cotton surged 69 per cent to $492 million during the first four months of the current fiscal year, compared with $292 million in the same period of the last fiscal year.

The cotton output is gradually declining over the past several years, the yield of this crop during the fiscal year 2014/15 was 13.96 million bales and it shrank to just 7.06 million bales in the fiscal year 2020/21, according to the Economic Survey of Pakistan.

Cotton is the major raw material for textile industry, which is the largest export sector. The government and other stakeholders should focus on improving yield of the important crop.

Coming to other food products that are imported in a large quantity in the category of ‘others’, should either be banned or bring under the high rate of duty to discourage their imports. Pakistan’s big retail marts and wholesale markets are flooded with these imported products, which included ketchup, fruit juices, biscuits, chocolates, candies, cereals, etc. By discouraging import of such items may help encourage the local production.

There are many other non-food imported products, which are available in the markets such as shampoos, soaps, cosmetic materials, perfumes, etc. These products are also manufactured or prepared locally and discouraging import of such products may save huge foreign exchange.

In the machinery group, the country spent an amount of $3.71 billion during the first four months of the current fiscal year, compared with $2.64 billion in the same period of the last fiscal year, showing an increase of 41 per cent. Since Pakistan is not self-sufficient in heavy machinery so the import of this segment is necessary.

However, a huge foreign exchange can be saved by minimising the import of mobile phones. The import of mobile phones increased to $644 million during the first four months, compared with $557 million in the same period of the last fiscal year. The local manufacturing of cellphones has been started in the country and big international companies such as Xiomi with the local partner, is set to start production in Pakistan.

Transport is another major import group where the country is spending huge foreign exchange. Under this head, the imports recorded an increase of 140 per cent to $1.48 billion during July-October 2021/22, compared with $618 million in the same period of the last fiscal year.

The import of motor cars in completely built unit (CBU) surged 112 per cent to $123 million during the first four months of the current fiscal year, compared with $58 million in the same period of the last fiscal year. Similarly, a huge amount has been spent on the import of heavy motorcycles.

The commercial import of CBU motor cars are not allowed in Pakistan; however, imports of new, used and older motor vehicles are allowed under three different schemes, which included transfer of residence, gift scheme; and personal baggage.

This facility has been grossly misused in the past. However, the government has taken measures to ensure the facility is available by only overseas Pakistanis. But considering the significant rise in import of motor cars, the government should put a check on it.

With the growing local demand and high global oil/commodity prices, it will be difficult for the government to curtail the import bill in coming months. The oil import bill will remain a big challenge in the coming months due to higher prices and growth energy demand locally. Further, the import of machinery for the export-oriented sector and construction industry may also rise due to acceleration in economic activities; following ease in the coronavirus cases.

However, the government may review the Import Policy Order for imposing a ban on non-essential or luxury items that have weight on the import bill. But putting a temporary ban on such non-essential and luxury items, the outflow of the foreign exchange in the shape of import payment may be trimmed.

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