LATEST data on the country’s import bill shows some interesting changing patterns, and presents challenges to the government’s assertion that its policies will lead to a moderation of the trade deficit and perhaps even a slight increase in the country’s foreign exchange reserves by June. The data shows a large increase in imports of oil and related products, driven in large part by price increases rather than quantity. In significant measure, imports of LNG have increased, driving up the bill for oil and related products since LNG is classified as a part of the petroleum group. In the days to come, this bill is likely to come down as per government announcements, so some relief might be seen. But a continuing increase in oil prices poses a serious challenge to the government’s projections on the external account.

Even more interesting is the replacement of the machinery imports with transport vehicles. Over the past couple of years, machinery has been the largest contributor to the surging import bill, which allowed the government to argue that the resultant trade deficit is a temporary phenomenon and consists largely of “healthy imports”. That argument is harder to make for transport vehicles, since used car imports are counted among this group, which surged by more than 46pc or almost a billion dollars in the period July to February. This was the case despite an interruption in the clearing of these vehicles from three months due to changes in procedures that were in effect during this time. Machinery imports appear to have peaked, with the latest period showing a declining trend. In the aftermath of the depreciation, the finance minister has argued that he expects the trade deficit to decline, and with projected capital inflows, the gross reserves of the country to climb by $600m. This is an optimistic projection, though it may yet come to pass. But it is worth asking how far the changing patterns within imports are accounted for in drawing up this projection, which appears to overestimate the role that regulatory duties and depreciation will play in helping suppress imports. If the projection pans out as expected, a renewed approach to the IMF could be averted during the current calendar year. But if trends outside the projections gain momentum, and throw the figures out of balance, the question of a return to the Fund could reassert itself. These are very high stakes to be playing with.

Published in Dawn, March 25th, 2018