Curbs likely on import of non-essential items

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (July 11 2008): The government is considering restricting import of non-essential items to control soaring trade gap which would contribute substantially to cross budget deficit over 4.7 percent of GDP. Independent economic analysts expect that current account deficit would exceed 8 percent of GDP ($13 billion in FY08) exceeding $1 billion a month mainly because of trade deficit which has crossed $20 billion in 2007-08.

-- This step is said to be aimed at controlling soaring trade gap

"The government had projected 6.5 percent growth in balance of payments which has crossed 40 percent due to massive increase in imports," analysts added. International Financial Institutions (IFIs) have also warned Pakistani authorities that next two to three months are very crucial for the country, taking into account forward liabilities, net reserves below $8 billion, which are less than three months' imports or six months' balance of payment support.

"Most crucial test for the authorities in the next two to three months would be the implementation of regular fuel price adjustment. Controlling the subsidy bill and runaway imports are absolutely crucial at this critical juncture," said Deutsche Bank in its report on Asian economies.

Official sources said that the government may impose regulatory duty to discourage import of unnecessary items especially mobile phones and vehicles as import of these two items takes away $2 billion annually.

The country's forex reserves remain under server pressure as imports demand is yet to taper off, while inflows are said not to be sufficient enough to prevent further depletion.

Official sources confirmed that the US defence-related grant inflows could well accelerate to $1 billion. Saudi Arabia is also expected to provide crucial balance of payment support through an oil credit facility which could be worth over $4 billion. World Bank budget support worth over $1 billion during the course of the year and another $1 billion was being expected from the Asian Development Bank.

The sources said that timing of these inflows was, however, not clear and the multilateral flows in particular would likely to be linked to steps to ensure fiscal sustainability, in particular hikes in fuel prices and energy tariff.

The sources said that the government has to further increase diesel prices by 40 percent and petrol prices 10 percent to keep the budget estimates as per plan. "If the government does not increase oil prices for one fortnight its impact on the budget is Rs 20 billion," the sources elaborated.

Unfortunately, political leadership remains distracted by intra-coalition tension and the security situation and may not be ready to implement some of the requisite measures.

Official sources said if political uncertainty prevailed, the government would be compelled to approach the IMF, which means the country would again be dictated by the US. Official sources said that the Federal Board of Revenue could not achieve 25 percent growth in revenue as was projected in the federal budget 2008-09 due to political uncertainty.

Official sources cited an example of Benazir Bhutto who in mid 90s in her capacity as Premier asked the then CBR Chairman Javeed Talat as to why revenue target was not being achieved. He said, Madam Prime Minister, you give me political stability, I will give you the target achieved."

The country was facing the same situation these days and FBR would not be able to meet the target if political uncertainty existed.

Official sources said the Planning Commission would have to review its development programme and should seek funds for only prioritised schemes rather than making irrational demands.

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