There has been a sudden surge in gold imports in recent months. The rush to import the precious metal was so intense that the apex decision-making body for economic issues, the Economic Co-ordination Committee (ECC) of the cabinet, had to intervene at the end of the last month to ban the import of gold for a 30-day period.
Pakistan imported gold worth $346.2 million in fiscal 2013, up a massive 101.7% from fiscal 2012 when the import bill for the same commodity was to the tune of $171.6 million. The rise was all too meteoric in the month of June alone when gold worth $40.2 million was imported as opposed to gold imports of $14.5 million in the corresponding month of last year, reflecting a rise of 176.1% on a year-on-year basis.
So what exactly was causing the gold import spree in Pakistan?
Apparently, some jewellery dealers were behind the rapid surge in gold imports under the duty-free gold import scheme, which is governed by a statutory regulatory order (SRO). Ordinarily, jewellers are allowed to import gold as much as they please, provided they declare it at customs and pay the required duty. But the SRO allowed jewellers to import a proportionate amount of gold without paying the duty against the value of jewellery they had exported in the preceding eight months.
“It is wrong to assume that Pakistan exports jewellery. Nowhere in the world can we find made-in-Pakistan jewellery – be it Saudi Arabia, Dubai or the United States,” said Acting Managing Director Pakistan Mercantile Exchange (PMEX), Amjad Khan while speaking to The Express Tribune.
“They showed on paper that they have exported jewellery and then imported gold against it without paying any duty, causing a disproportionate surge in gold imports. The imported gold later sold locally and was also smuggled to India,” he added.
Khan says other unscrupulous elements are also taking benefit of the regulatory loopholes by sending dollars abroad under the pretext of gold exports. “People can’t send dollars abroad without getting on the radar of regulators. So they simply ask jewellers to purchase gold on their behalf, which is then exported in the form of bangles. They are converted back into gold bars once they reach Dubai,” Khan noted. “That’s how the dollar is getting out of Pakistan,” he added.
Indeed, data suggests the decline in Pakistan’s foreign exchange reserves in recent months is mainly on the back of increased imports. In the last week of July, Pakistan’s total liquid foreign exchange reserves decreased to $10.2 billion, down 7.2% from the preceding month. Speaking to The Express Tribune in an interview last week, Elixir Securities Vice President Muhammad Azfer Naseem had noted that gold imports were one of the primary reasons for the decline in foreign exchange reserves of almost $800 million in one month.
Karachi Saraf and Jewellers Group President Haji Haroon Rasheed Chand was not available for comment. His associates at the jewellers’ representative body declined to speak on the matter.
Published in The Express Tribune, August 8th, 2013.