June 06, 2008	Friday	Jamadi-us-Sani 01, 1429

KARACHI, June 5: Industrialists all over the country pin their hopes on budget speech by Finance Minister Syed Naveed Qamar next Monday to announce withdrawal of 35 cash margin on opening of letters of credit for import of non-oil and non-food products.

“We are on verge of depleting our entire inventory of chemical raw material needed for our factory,” owner of a leather goods factory in Korangi industrial area said, who hopes that the government would not waste more time in making this much-awaited announcement.

“Under extreme existing recessionary conditions we can hardly maintain three to four weeks inventory of raw material with us,” explained Zubair Tufail, the vice-president of the Federation of Pakistan Chambers of Commerce and Industry said.

Industry leaders say that there are about 30 big bonded warehouses, mostly in Karachi, where raw materials and other imported items are stocked and the required goods are released on the basis of day to day consumption. In upcountry, big factories have bonded warehousing in their premises. “But these are depleting fast for fear of running out of stock by next week or so,” Zubair said.

The depletion of raw material stocks is a worrisome factor that is preventing many industrialists from entering into a supply contract with their buyers for fear of non-compliance. This, in turn, is also depriving them of the cash they would have been able to get as advance from their buyers.

“The situation is precarious, which may become alarming by next week before we pull the shutters down on our factory,’’ is how a manufacturer explained.

A 35 per cent cash margin on import of raw material and other items was imposed by Governor State Bank of Pakistan Dr Shamshad Akhtar, effective from May 23, after she found that non-oil and non- food imports are up by almost 46 per cent in first ten months of the current financial year.

In her pre-budget and pre-monetary policy intervention, the State Bank governor took measures to squeeze liquidity from the market that has made bank credit more expensive and imports a virtual prohibitory business activity. The reason was fast expanding fiscal and current account deficit that has brought rupee exchange value under tremendous pressure and was pushing up inflation beyond tolerance level.

The State Bank’s measures did not contain inflation nor were able to bring budget deficit under control but gave a crippling blow to the already dying industry. There was a lot of hue and cry and angry statements from the entire business community.

Finally, after consultation with the finance ministry, the SBP governor assured a delegation of senior business leaders on May 30 of reviewing the 30 per cent cash margin condition on import of raw materials.

After imposition of 30 per cent cash margin, opening of letters of credit for import dropped by almost 70 per cent, a senior FPCCI leader said. “Only big corporations went ahead with lodging their letters of credit, while the industrialist community, mostly Pakistanis, was literally pushed out of the business.

A flurry of activities and consultations were going on with the politicians in the government or in close links with the government to make them realise that after the trade liberalisation, Pakistani is flooded with a large variety of finished goods.

“You can buy children wear from Thailand, fabrics from China, India, and Indonesia, and beverages and drinks from all over the world, Dutch cookies, German, French and Danish honey in Pakistan,” a businessman revealed.

“There are about $3 billion of miscellaneous imports flooding Pakistan every year,” he said and pointed out that under-invoicing and mis-declaration and even smuggling are now considered to be normal business norms,” he said adding that since the time when 90 per cent of private sector imports were brought under the Care system, floodgate of all sort of goods have opened for Pakistan market.

The industry now hopes that the finance minister in his budget speech will announce a tariff firewall on imports of all those items classified as luxury goods -- that are plush and sleek cars of 1,200cc and above, beverages and drinks, readymade garments, cookies, candies and chocolates and eatables, digital cameras and what not.

The entire Federal Board of Revenue and, particularly the customs need to be revamped from top to bottom, he suggested.