The government’s decision to ban the import of several hundred nonessentials last week may be a step in the right direction but it will certainly not be enough.

Banning private foreign trips and a host of other dollar saving measures for a specified time period may ease the mounting pressure on the country’s foreign exchange reserves and arrest the rupee free fall but market stability is hard to imagine before a stable elected government assumes office after the elections.

According to current official data, on May 13 the State Bank foreign exchange reserves stood at Rs10.1 billion, hardly enough to cover seven weeks of Pakistan’s import bill.

Besides dollar savings, Prime Minister Shahbaz Sharif’s action probably aimed to quell the impression of paralysis in the government. It also targeted creating some breathing space in the ongoing marathon negotiations with the International Monetary Fund (IMF). Will the government achieve what it aimed for? My guess is as good as yours.

Some watchers believe that the real reason for the business vote in favour of an energy rate increase is the fear of alternative resource generation measures that burden them primarily

The IMF has categorically been insisting on doing away with subsidies in the fuel and energy sector prior to programme revival. The last PTI government deferred the decision and the current coalition government has also been reluctant to implement the IMF’s condition fearing a political backlash.

Sensing the direction of policy options, the market may react before adjusting to emerging new realities.

Dreading the possibility of sovereign default and its devastating consequences on the economy the business community of Pakistan generally saw the ban on luxury items as something that was long overdue. The economic meltdown and political chaos in Sri Lanka must have scared them.

Several business platforms including the Federation of Pakistan Chambers of Commerce & Industry (FPCCI), the Pakistan Business Council and the Overseas Investors Chamber of Commerce and Industry (OICCI) have been demanding decisive actions that include banning the import of luxury items to break out of the current cycle of crisis. Acknowledging the value of the IMF programme for their economic future, they have also been advocating complying with the IMF demand for withdrawal of subsidies in the energy sector.

Some watchers, however, believe that the real reason for the business vote in favour of an energy rate increase is the fear of alternative resource generation measures that burden them primarily.

Some experts were not impressed with the ban and termed it counter-productive as in their view it will depress duty collection and encourage smuggling. Others supported the move and advised follow up steps such as banning avoidable foreign trips and negotiating deferral of fee payments to overseas education institutions where Pakistani students are studying funded by families. They project a saving of several hundred million dollars on these two counts if the government so decides.

Discussing the subject Malik Bostan, President of Pakistan Forex Association shared old data on Pakistani travellers and their dollar consumption. He said that data for the past two years and the current one is yet to be compiled but around 15 million people travel overseas annually. He said the number of travellers soared during the current year as Covid induced restrictions were lifted after a lapse of two years.

Responding to the request for the current data on dollar demand by Pakistanis intending to travel State Bank forwarded this: “Travel-personal-debit, (that included foreign exchange acquiredemitted abroad by Pakistanis for travel abroad), is recorded at $842m for Jul-Mar FY22 & $540m for Jul-Mar FY21”.

Musadaq Zulqarnain, a leading businessman and Chairman of Interloop Ltd, believes the country needs to embark on a corrective path to regain stability irrespective of the elections through measures such as dumping fuel subsidies, ending the real estate amnesty and restricting non-essential imports. “It will increase inflation and bring hardship for ordinary people. To dilute the adverse impact the government will have to provide direct subsidies through BISP (Benazir Income Support Program) and implement an increase in minimum wages. At the same time, incentives for regionally competitive conditions will have to be continued for the export industry to boost exports and combat the current account deficit.

“But where will the money to fund the social net come from as the tax and duty collection at the import stage will be impacted by import restrictions, especially when a major part of the elite are never willing to play their part, unfortunately? Though, instead of further taxing the existing taxpayers, the government should use the data of the National Database and Registration Authority and sternly go after the tax-evading elite”.

Former president of FPCCI Zubair Tufail considered it hard for the government to complete the terms till June 2023, because of the growing demand for early elections. He favoured tough decisions with the elite made to bear the burden as the poor and middle classes are already grinding under the pressure of inflation.

M Abdul Aleem, chief executive/secretary general of OICCI called for an immediate increase in fuel and energy prices, removal of subsidies in small regular steps, shielding the vulnerable families with the Ehsaas programme and reviving the IMF programme soon. He also hammered to finalise the charter of economy with the leading political parties.

“Economy and investment will flourish if there is clarity on the continuity of key economic policies irrespective of the change in Islamabad”.

Chaudhry Saeed, former head of FPCCI pinned hopes on the PML-N led coalition. He was for the diversification of the industrial base by setting up innovative export industries. He called for the export of technical services and manpower, removal of all tax exemptions, privatisation of loss-making public sector enterprises and curbing corruption. “To this end, a strong consensus national economic agenda must be adopted and targeted subsidies should be introduced”.

He was critical of former prime minister Imran Khan who he said is not letting the country move on. He blamed several unelected PTI leaders for the economic crisis that haunts the country.

Attempts to get input from leaders of the government didn’t succeed. In response to a query about the government’s inaction, Federal Energy Minister Khurram Dastagir Khan shared the list of banned import items.

Published in Dawn, The Business and Finance Weekly, May 23rd, 2022

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