Industries ramp up imports of plants, machinery

Imports of capital goods rise 11% to $3.6b in Jul-Dec 2023

KARACHI:

Pakistan has gradually ramped up imports of plants and machinery, indicating that industries are purchasing capital goods to sustain existing production levels as well as make necessary upgrade and expansion of factories as they foresee a promising growth outlook.

Pakistan Bureau of Statistics (PBS) reported that imports of machinery increased 41% to $671 million in December 2023 compared to $475 million in the same month of last year.

Overall, in the first half (Jul-Dec) of the current fiscal year, imports rose 11% to $3.60 billion as against $3.35 billion in the corresponding period of the previous year.

Industries have managed to increase imports at a time when the country is undergoing an economic slowdown, indicating their optimism about the future. They are importing such goods despite a high cost of borrowing and a significant increase in financing rate for exporters recently.

Data breakdown suggests that the top two imports were electrical machinery and apparatus, and telecom equipment in December as well as in the first half of the year. Some 55% of the total import of machinery in six months comprised the electrical and telecom sectors.

The agriculture sector also saw a significant surge in imports of machinery in terms of percentage.

Imports of textile machinery, however, continued to decline in the month under review as well as in six months as they had already expanded their operations during the Covid-19 period and later, driven by the central bank’s subsidised financing called the Temporary Economic Refinancing Facility (TERF).

Imports of machinery by power and construction industries also dropped because the power sector had already boosted its production capacity significantly under the China-Pakistan Economic Corridor (CPEC) projects while construction activities slowed down following a reduction in the government’s development projects in the past few years.

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Sindh Abadgar Board President Syed Mahmood Nawaz Shah said historically Pakistan had made significantly low machinery imports for agriculture. Therefore, “any slight increase in imports shows a significant growth in percentage terms”.

PBS data showed that imports of agricultural machinery and implements rose 70% to $37 million in the first six months of FY24 compared to the same period of FY23.

In that category, Pakistan mostly imports tractors. The government had allowed the import of used tractors about a year ago, he recalled, adding “Pakistan does not produce fuel-efficient and high-efficiency tractors.”

Akseer Research Director Muhammad Awais Ashraf said the growth in imports of machinery came mainly as a result of a low base effect. Machinery imports had dropped 52% to $4.8 billion in FY23 compared to FY22.

He noted that average machinery imports by industries came in at $8.7 billion in five years from FY18 to FY22, including the Covid-19 period.

Imports in the ongoing year will be better than in FY23, but they will still stay low at $6.5 billion compared to the five-year average of $8.7 billion.

He pointed out that industries had managed to increase imports mainly to maintain the current production levels.

He, however, noted that the industries ramped up imports despite Letters of Credit restrictions, the requirement of advance import payments and the premium on import payments charged by overseas sellers due to the country’s low import capacity in dollar terms.

Published in The Express Tribune, January 20^th, 2024.

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