KARACHI: The government is developing a plan to address the growing difficulties on the external front in the immediate term, involving regulatory duties on imports of a large number of items, a senior official who is in the know told Dawn on Saturday.

“The government is trying to both incentivise exports and reduce imports by coming up with a regime of regulatory duties,” he said. “This is something they are working on and is likely to be announced soon.”

Early this year the government announced increased margin requirements to discourage imports, but the plan met with limited success. Then the budget FY18 expanded regulatory duties on a large number of items, as a result of which collections under this head improved.

“But they have not been able to slow down imports, so the list will be expanded, and the amount of the duties will also be increased,” the official told Dawn requesting anonymity.

“No amount of increases in remittances and exports will reduce the current account deficit significantly. This can only be done if these measures are coupled with slowing down of imports.”

He added that the new duties will target “non-essential” imports, although they are likely to go beyond this. When asked to elaborate, he mentioned luxury cars and mobile phone handsets as likely categories amongst others.

When asked about the fiscal framework, he agreed that it is “under stress” and requires active steps to ensure that the budget deficit this year comes in below 5.8 per cent of GDP. “That level was too high,” he said, attributing the reason to overspending by the provinces in light of election-related pressures. He did not elaborate on how the federal government might restrain the provinces from overspending.

Last year the budgeted provincial surplus was Rs339 billion, whereas the real figure came in closer to Rs290bn, a gap of almost Rs50bn. This year the government is counting on the provinces to run a surplus of Rs347bn.

“Keeping the budget deficit at less than 5.6pc is a key challenge for this year,” he said.

When asked whether Finance Minister Ishaq Dar is able to spare much time and energy for economic policy given his legal entanglements, he said Mr Dar’s mind is obviously preoccupied with his difficulties, but the finance ministry has a “very competent team” that is continuing to work on the economic front.

“Policy work has not suffered on account of Mr Dar’s legal difficulties,” he assures Dawn.

The State Bank also pointed towards the current account deficit as one of the key challenges facing the economy in its Monetary Policy Statement on Friday.

“Timely realisation of official financial inflows is now crucial to bringing about any improvement in the current account deficit, as well as structural reforms to improve trade competitiveness for the medium term,” the central bank pointed out.

Published in Dawn, October 1st, 2017