Finance Minister Miftah Ismail on Saturday hinted at implementing a steep reduction in imports through a combination of regulatory duties and import controls, as the government seeks to curtail the current account deficit by around 40% to $10 billion in the next fiscal year.

The government will compress the imports through various measures with the objective to reduce the current account deficit to $10 billion in the next fiscal year, said the finance minister while talking to The Express Tribune.

The import-control measures include imposition of regulatory duties on the import of mobile phones and machinery, banning import of cars and increasing duties on the import of auto parts, said Ismail, who is facing a serious challenge to prevent the economy from default.

The current account deficit has already ballooned to $13.2 billion in nine months of current fiscal year and Ismail feared that it could widen to $17 billion to $18 billion by the end of the year.

Reducing the deficit to $10 billion could take a heavy toll on the economy, but the government is left with no option but to slow down the wheel to avoid default.

The last government of Pakistan Tehreek-e-Insaf (PTI) had left behind $10.9 billion in foreign exchange reserves, which included $10 billion borrowing from China, Saudi Arabia and the United Arab Emirates (UAE) and another $4.5 billion borrowing from commercial banks. Effectively, the reserves were negative.

The finance minister said that the government would also increase the number of imported products that would be subject to 100% cash margins.

Except for essential goods, the rest of the items may be subject to different kinds of measures, said the minister.

However, the regulatory duties and cash margin requirement have not proved effective in the past in reducing imports, as 80% of the country’s imports are either raw material or intermediary goods, according to the World Bank.

The government may face some resistance from the World Bank and the International Monetary Fund (IMF), which often oppose such restrictions on imports.

Ismail on Saturday also held a meeting with heads of all major exchange companies aimed at bringing some stability to the value of the nose-diving rupee. State Bank of Pakistan (SBP) Deputy Governor Dr Inayat Hussain also attended the meeting.

“Finance minister expressed the firm resolve of the government to ensure stability in the forex (foreign exchange) market,” said a statement issued by the finance ministry.

Read Rupee hits new record low of Rs192.53 against dollar

Ismail said that the government was committed to taking all possible measures to keep Pakistani rupee vis-à-vis the US dollar stable without interfering in the market mechanism.

The finance minister showed the firm resolve of the government to ensure the exchange rate stability.

He also assured the meeting participants that all possible steps would be undertaken to protect and strengthen the economy that would result in improving the value of Pakistani rupee.

He affirmed that the government was determined to make Pakistan a prosperous and developed country.

Pakistani currency maintained its downturn for the fifth consecutive day, as it dropped to a new all-time low at Rs192.53 against the US dollar in the inter-bank market on Friday.

Cumulatively, in the past five working days, the rupee has depreciated Rs6 to a dollar.

The day the PTI rule ended, the rupee-dollar parity stood at Rs184.68 (devaluation of Rs7 in one month). At the start of the fiscal year, it was at Rs157.87 but dropped Rs35, or 22%, in value.

The finance ministry statement said that various proposals were presented by the heads of exchange companies. It was proposed that the exchange companies should be facilitated to increase the flow of home remittances to Pakistan.

The exchange companies proposed that the government should give an amnesty to incentivise people to bring the dollars held either in their homes or lockers in the market. However, the finance minister ruled out any such scheme, which is against the IMF programme commitments.

A number of measures were also suggested to curb the outflow of foreign exchange from Pakistan through the informal channels, according to the ministry.

The exchange companies assured that if these measures were implemented, there would be appreciation and stability in the value of Pakistani rupee.

The finance minister stated that the government would not allow the dollar to go up further. It was revealed in the meeting that exporters were not bringing back their receipts and the central bank did not take enough measures.­­

Published in The Express Tribune, May 15th, 2022.

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