/ November 28, 2022

Impacts of Import Ban in Pakistan – National Issues in Pakistan

As part of an emergency economic plan to stabilize the country’s economy, the Pakistani government has outright banned the import of more than thirty luxury goods. Emergency plans have been launched to stabilize the crumbling economy, including the heavy ban on more than three dozen non-essential luxury items.

According to the economic plan, Pakistanis will have to make sacrifices because of the emergency circumstances, the information and communications minister Maryam Aurangzeb stated last month. The foreign exchange reserves of the country would be quickly affected by this. The minister added that the reliance on imports was also not helping to stabilize the economic situation of the nation.

As a result, the government will shortly announce an export-focused programme that will help the regional farmers and industry while also creating jobs. But this transition cannot happen overnight.

All of these policies are in place to combat the Pakistani Rupee’s sharp decline in value relative to the US Dollar. The mounting import bill, expanding current deficit, and diminishing foreign exchange reserves have all been linked to this depreciation. For this reason, the government intends to implement measures that encourage export while lowering the price of imports.

The import ban on 894 articles primarily affects consumer goods (659 out of 894), but it also includes intermediates and capital equipment products, most notably “mobile phones,” which are classified as “capital equipment” by trade statistics.

Effects of Imports Ban on Pakistan

The restriction on the import of luxury goods will preserve the nation’s “valuable foreign exchange,” yet it will only reduce the monthly import bill by $200–300 million, or less than 5% of the $6 billion monthly import bill. In addition, this limitation won’t be enforced using rupees or a barter system over land channels.

Several well-known people have criticized this choice as well. The former senior vice president of the Pakistan Chamber of Commerce disagreed with this choice, calling it a wise move on the part of the government. In addition, he believed that if the government wanted to preserve the declining foreign exchange, it was imperative to pay off the international loans.

The policy instability brought on by this restriction will also lessen the incentives for investment and innovation. Requirements for import licenses in particular encourage rent-seeking and favor large businesses that can invest more resources in navigating the system and obtaining quick approvals.

While the goal of all these restrictions is to reduce imports, leakages are still possible through smuggling, misreporting, and product substitution. The transition from CBU phones and vehicles to CKD and semi-KD phones and cars is one example of a substitution that is likely to happen. The terms of the SBP approvals will, however, determine the scope of this restriction.

Cons of Import Ban

Due to the increased incentives for importers to misreport shipments and encourage smuggling, this ban may also be somewhat counterproductive. Additionally, the productivity of numerous businesses will decline, leading to the absence of a number of products, which could result in the reversal of this strategy.

Finally, it will encourage a bias against exports. The import ban is generating more market power, which domestic producers can get by concentrating on the home market. The combination of the import permission procedures and the restriction raises the relative profits of domestic sales for this reason. Therefore, if the products are sold domestically rather than being imported, the combination of the restriction and the export license procedures improves the relative profit received.

A prohibition on imports would be much more substantial than an increase in taxes. However, the impact of the import approval requirements is unpredictable because it will rely on both the likelihood and the speed of gaining the approval.

Due to the higher profits available domestically, a company will not be forced to stop exporting in order to avoid the anti-export bias this will produce. However, this is but one option among many.

The government has been trying to implement an export-oriented policy, which will benefit local industry and producers and create employment. Pakistan will need to lessen its reliance on imports to put the country on the path of economic stability and prosperity.

The change occurred after the Pakistani rupee had been falling over the previous few weeks, reaching a historic low of 200 versus the US dollar on Thursday in the interbank market, down 0.81 percent from the previous day.

The ban (and the permission requirements) encourage smuggling and increase importers’ incentives to disclose shipments incorrectly.

The ability of businesses to operate, invest, or increase productivity will probably be impacted by the unavailability of some import products (especially intermediates and capital goods). For instance, a recent import embargo in Sri Lanka that included chemical fertilizers caused significant declines in agricultural output, which eventually resulted in the policy’s reversal.

Conclusion

The prohibition aims to prevent the dollar reserves from declining and to limit currency depreciation. While the data above suggests that the policy is ineffective at saving reserves, it is not a good idea to try to stop depreciation by banning imports. Instead, the government must allow the currency to fall in value in accordance with market forces because this will eventually help to reduce imports without creating a parallel market through the smuggling of commodities.

The local electronics, mobile phone, and automobile industries have already received substantial protection through import bans and/or high levies, but the industry as a whole has failed to take advantage of this protection to meet local demand in terms of quantity and quality.

Any such import ban will simply worsen the situation for consumers because local businesses cannot compete with imported goods, and their ability to do so will be further hampered by the prohibition.

It is hoped that the struggling economy would find its footing again. Additionally, this import prohibition was put in place to save up to $6 billion by targeting the nation’s elite. Business leaders, however, argued that in order to govern foreign trade, the nation must get approval from the World Trade Organization.

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