PAKISTAN`S interim government is reportedly contemplating the imposition of `prohibitive` regulatory duties on luxury and non-essential imports. The idea is to shrink the trade gap and restrict dollar outflows. The plan is said to have been debated in the military-backed SIFC and is part of a broader strategy to curb the rapid depletion of our foreign exchange reserves that have dropped below $8bn. A report in this paper suggests that the new regime will cover at least 30pc more products than the 860 or so that had come under regulatory duties in August last year. Many items under consideration pertain to essential intermediary material for industry as well as cooking oil.
We have seen governments take similar decisions previously, but without much success. Such import restrictions work in economies that have strong border controls in place to thwart the influx of inbound shipments through illegal means, and that display zero tolerance, officially and socially, for smuggled goods. Pakistan is not among them. The measure will only increase smuggling and result in a bigger loss of revenue for the exchequer, unless the government takes strict action to prevent smuggled goods from entering the country and reaching the markets.
Any effective anti-smuggling plan calls for stringent punishments for both sellers and buyers beyond reinforcing border controls. The proposed strategy may prove counterproductive if the government actually places regulatory duties on intermediary raw industrial material and basic food ingredients like edible oil. We have recently seen the consequences of a ban on imports, which proved to be disastrous for the productive and export sectors of the economy, despite bringing short-term advantage in terms of a reduction in the trade deficit. Besides, the application of such curbs on imports for saving forex reserves betrays a lack of confidence over claims of massive investment and other inflows from the Gulf nations.
Why curb imports if we are about to receive billions of dollars in the next six months?
