Little purposeful impact

In the latest attempt to control the country’s rising trade deficit, the government has slapped regulatory duties on three dozen products and revised upwards its rates on another 240 essential and luxury items. The move — the second time that the ruling Pakistan Muslim League-Nawaz has made such a huge increase in the rates of regulatory duties — is unlikely to have any purposeful impact on the ballooning bill of imported goods. Still the government hopes to generate at least Rs40 billion in additional revenues. There are estimates that the additional duties may help stem the import bill from around $300 million to $400 million during the current fiscal year. But it is understood that since some items will still be imported due their high demand, there will be inflationary implications to contend with.

By imposing regulatory duty on all types of imported cars, including hybrid vehicles, the government is going into uncharted territory. Already there are rumblings that the increase in regulatory duties on cars is in violation of the automobile policy. This could very well hold back fresh investments in the sector.

The country’s external account has come under tremendous pressure following the expiry of the International Monetary Fund (IMF) programme in September last year. Pakistan booked $12.1 billion current account deficit in the last fiscal year due to a record high trade deficit of $32.4 billion. The high deficit was because of sharp increase in imports and constant decline in exports that had plunged to $20.8 billion in the last fiscal year.

Officials say the additional duty to be collected from these products is be used to provide cash subsidy to exporters and clear their outstanding dues stuck with the government.

A far more effective policy can be found to cut imports, say, by introducing a regime of minimum import price on many essential goods. Import tariffs could also be doubled if one commodity is imported by more than a pre-specified level. This would help discourage unnecessary speculation by importers.

Published in The Express Tribune, October 19^th, 2017.

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