Staring at default of payment and buckling under the pressure thereof, the new government is doing what almost every government under similar circumstances has done – resort to quick fixes and populist policies.
With Rupee depreciating against the US Dollar on a daily basis, the government has decided to ban a certain number of “luxury items” to narrow the Current Account Deficit (CAD). This ban is subject to approval from the IMF and WTO.
What is Being Banned?
Here is the list of imported items banned under the emergency economic plan by the Government of Pakistan:
Electronics
Following electronics are banned from import in Pakistan, Namely:
- Automobile
- Mobile Phones
- Home Appliances
- Headphones and loudspeakers
- Heaters and blowers
Food
Following eatables are banned from import in Pakistan, namely:
- Imported Fruits and dry fruits (except from Afghanistan)
- Sauces
- Fish and Frozen Fish
- Preserved fruits
- Jams and Jelly
- Cornflakes
- Aerated Water
- Frozen Meat
- Juices
- Pasta
- Ice cream
- Chocolates
- Confectionary
Household and Personal use
Below mentioned imported household and personal use items are banned in Pakistan, namely:
- Crockery
- Chandeliers and lighting (except for energy savers)
- Doors and window frames
- Sanitary ware
- Carpets (except from Afghanistan)
- Tissue Paper
- Furniture
- Kitchenware
- Luxury mattresses and sleeping bags
- Shampoos
- Toiletries
- Traveling bags and suitcases
- Shaving goods
- Shoes
- Sunglasses
Other
Other banned imported items include the following:
- Private weapons and ammunition
- Cigarettes
- Luxury leather apparel
- Musical instruments
- Salon items like hair dryers etc
Many of these imported items on the list are frequently imported and used in Pakistan. According to the Information Minister of Pakistan, the ban on importing these items will help the economy by $6 Billion.
Is this a Good Policy?
No. And the reason is simple: Pakistan DOES NOT import luxury cars and mobile phones in very large numbers.
Pakistan’s Import Bill
To keep things in perspective, let’s look at the numbers as numbers don’t lie:
- Pakistan imported goods worth $44.7 billion in 2020-21.
- Pakistan imported goods worth $65.5 billion in 2021-22.
- Overall imports have gone up by 46.41 percent.
- From July 2021 to April 2022 – $5.5 billion was spent on the imports of cell phones and cars.
- Pakistan imported mobiles worth $1.68 billion in 2020-21.
- Pakistan imported mobiles worth $1.81 billion in 2021-22.
- Overall mobile phone imports have gone up by 7.43%.
- Pakistan imported cars worth $ 2.332 billion in 2020-21.
- Pakistan imported cars worth $ 3.733 billion in 2021-22.
- Overall car imports have gone up by 60%.
Do you know what we import the most?
It’s not the “luxury items” but rather everyday essentials like:
- Petroleum products
- Gas
- Palm oil
- Raw cotton
It is these items on which we are spending most of our foreign exchange, not cars and mobile phones. It is true that the import of cars and mobiles have gone up since 2020, it is still not significant to the extent where banning them would make a substantial difference. Saving $$$ by banning import of cars and mobile phones would be a drop in the ocean.
Even otherwise, banning these items doesn’t make sense because they are already heavily taxed and the government earns revenue off them.
Future of Subsidized Goods in Pakistan
There are only two ways to increase the cash flow for the government. Either to reduce the cost or to increase the revenue. An increase in revenue is never guaranteed, especially in a country like Pakistan, where only a limited percentage of the total population pays their taxes. So the only reasonable solution for the government is to decrease spending.
The Pakistani economy is highly subsidized, and the Government of Pakistan is paying billions monthly to keep the prices of daily commodities within an average man’s reach. A simple example is the fuel price in Pakistan. According to the Oil & Gas Regulatory Authority (OGRA), the government is paying or subsidizing Rs.37.91 and Rs.78.55 per litre for petrol and diesel, respectively.
The government of Pakistan is not in a state to bear the soaring financial burden, which also contributes to the already struggling economy with inflation.
To increase the government’s revenue, the Federal Board of Revenue (FBR) has proposed to increase the duties on the following items. Here are the highlights,
- Regulatory duty on machinery to increase by 10% while home appliances by 50%
- Power generation machinery is suggested to increase by 30%
- Duty on cars above 1000cc to increase by 100% and 30% additional customs duty
- Regulatory duty on ceramics to be up by 40%
- An increase in the duty on mobile phones between Rs.6000 to Rs.44,000.
What is Current Account Deficit (CAD)?
Current Account Deficit means the difference in the balance of payments between the import bill and export bill of a country. If a country’s exports are more than its imports, the CAD is positive, and it’s a healthy economy. Unfortunately for Pakistan, the import bill is much higher than the export bill creating a negative CAD.
The gap in the import and export bill is still substantial, and with the depleting reserves of Pakistan, it’s essential to reduce the balance further.
What do you make of this latest government policy? Do you think banning “luxury items” is the answer?
It is a very good step to control rate of dollar cars cosmetics tyres are luxury items and only rich people can buy them they can also give more tax on them but they don’t so in my opinion it is a very good step
Banned on luxury cars is good decision but banned on cars under 1300cc isn’t good decision because in the Same price local cars quality is zero and imported cars Quality is admirable,
With only about $10b in Government coffers, $5.5b spent on mobiles and cars is 8.4% of our total import bill and the author believes that it is an insignificant amount, whereas we go to IMF & others who give us even lesser amounts and then impose themselves on us. This decision should have been taken and implemented years ago.