The foreign exchange savings that the Shehbaz Sharif government aims to achieve by banning the import of 38 “non-essential luxuries” will have negligible impact on Pakistan’s growing balance of payments constraints. Touted as the PML-N-led coalition’s first major policy move to boost the flagging economy, the import ban is unlikely to bring in more than $100 million a month, or nearly 1.6% the country’s average monthly import bill of over $6.5 billion. exchange savings, contrary to the various official statements between 300 and 500 million dollars. A more pronounced impact would have been possible if the cap on energy prices had been removed and if measures such as the early closing of markets and the reduction of the number of working days had been applied to reduce household energy consumption. Imports of oil and gas for power generation nearly doubled to more than $17 billion between July 2021 and April 2022, compared to $8.7 billion in the previous corresponding period due to a record surge in their world prices. Additionally, not all goods prohibited under the ordinance can be classified as non-essential or luxury items. The measure, described by many as an indirect protection of local producers against banned imports, is also expected to drive up the prices of their local substitutes, fueling inflation. Needless to say, this could also encourage the smuggling of these items into the country.

The move came as the country’s liquid currency reserves fell to just over $10 billion and the rupee weakened to over 200 to the dollar, with imports jumping 46.5% to $65.5 billion in the first 10 months of the current and projected fiscal year. to peak at $77 billion at year-end. Given the scale of the economic collapse and the deteriorating position of the external sector, most experts are calling on the government to take unpopular decisions and roll back the unfunded energy subsidies that escalated the crisis. Even though the coalition partners now seem to agree on what needs to be done to save the economy and secure IMF financing, they are reluctant to make tough decisions without the buy-in from the powers that be and the assurance that their government be allowed to complete the term.

As the country is plagued by speculation that the establishment wants the coalition to announce early elections and work to put in place an interim arrangement, none of the ruling coalition partners would like to lose their political capital. by making unpopular decisions. PML-N leader Shahid Khaqan Abbasi told a TV host the other day that if other stakeholders (including the military) were not ready to take ownership of the tough measures that need to be taken to save the economy, his party should leave the government. It’s hard not to agree with him given the enormity of the economic challenge facing the country.

Posted in Dawn, May 21, 2022