Is Pakistan’s import growth sustainable?

Expert says $5b worth of imports in Dec should be cause for concern

KARACHI:

Experts are divided whether a significant growth of 25% in Pakistan’s imports in a single month is sustainable as imports are expected to remain high and heighten payment pressure ahead of the reopening of export markets.

Pakistan’s imports increased almost 25%, or $1 billion, to a 17-month high at $5 billion in December 2020 compared to slightly over $4 billion in the same month of previous year, according to the Pakistan Bureau of Statistics (PBS).

“Pakistan is heavily relying on receipt of workers’ remittances from overseas Pakistanis to manage payment pressure, while at the same time it remains uncertain whether the inflow of remittances will remain strong,” a senior analyst said while requesting anonymity.

The country has continued to receive remittances of over $2 billion a month over the past seven consecutive months (June-December 2020).

It, however, remains unclear that the inflows will remain at current high levels as a large number of Pakistanis has lost jobs abroad due to economic uncertainty in Gulf countries in the wake of lower international oil prices. About 60-70% of Pakistani expatriates live in oil-exporting countries.

Moody’s Investors Service - the research arm of Moody’s credit rating agency - has forecast a notable drop in remittances in several countries, including Pakistan, in 2021.

“The number (imports at $5 billion) is high. It should be a cause for concern,” BMA Capital Executive Director Saad Hashmi said.

What is encouraging is that the current account balance - which records major international payments and receipts - stands in surplus at $1.1 billion in the first half (July-December) of current fiscal year. “This shows that the external economy remains firm,” he said.

Pakistan’s central bank foresaw the spike in imports as sustainable. They are growth-driven and export-tilted.

“State Bank of Pakistan (SBP) Governor Reza Baqir last Friday said a deficit of $500 million a month in the current account balance in the second half (January-June) of current fiscal year is sustainable,” pointed out Tangent Capital Advisers CEO Muzammil Aslam.

A major growth in imports stems from the import of food items (wheat, sugar and cooking oil), cotton, fertiliser and automobiles. Imports of such commodities and goods will be on the rise in a bid to control food inflation, support textile exports and revive large-scale manufacturing industries like automobile.

Besides, “the import of machinery (for industrialisation) is yet to take off,” an analyst said, adding that the central bank had approved concessionary loans worth around Rs300 billion for over 500 new projects under the Temporary Economic Refinance Facility (TERF). They will import the machinery in the coming months.

International petroleum oil and liquefied natural gas (LNG) prices will also surge with the widespread availability of Covid-19 vaccines soon. “This will also increase import pressure on the national economy,” he said.

“This will, however, ensure that workers’ remittances remain strong and offset the energy import payment pressure to some extent,” he added.

Published in The Express Tribune, January 26^th, 2021.

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