Macro Bites

Macro Bite # 96

2 min read
On Thursday, PM Shehbaz Sharif announced an import ban on 41 “luxury items” for two months to help the country alleviate its balance of payments crisis. The list includes items like cornflakes (yet another win for our Faujis) and tissue paper (because true Pakistanis only use old t-shirts as absorbents). If this sounds a bit light-hearted, that’s because the import ban is unfortunately one big joke.

Firstly, the import ban is a mere populist measure that will not have any significant impact on our current account deficit. According to one estimate, these measures may save USD 600 million, reducing our total imports by less than 5% at the most. Furthermore, by banning these items rather than hiking the import duty on them, the government is forgoing revenue that could have been quite useful for other budgetary needs.

Secondly, as pointed out by an Oxford-based economist far more knowledgeable than me, Pakistan already has one of the most protected economies in the world. Yet, despite our high import tariffs, we haven’t been able to reduce our imports, or substantially increase our exports. In the past 30 years, our export to GDP ratio has fallen from 16% to 10%, while our industries have enjoyed raking in profits from a captive local market.
The import-substitution method of growth is no longer viable in the 21st century. Instead, the only way to lasting economic success is to foster competition by gradually decreasing the tariffs imposed on both imports and exports to and from Pakistan. Don’t believe me? Just ask Vietnam.

WEEKLY DATA WATCH   

KSE-100 fell marginally this week, as investors remained concerned over the status of Pakistan’s IMF program. PKR depreciated further this week to record lows, as SBP reserves fell to less than 1.5 months of import cover.

The annual change in the Sensitive Price Index rose to 16.54% vs. 15.85% last week. The poorest of the country (Q1) experienced a change of 14.84% vs. 17.40% for Q5. On a weekly basis, prices rose for all quintiles by 1.42%.
Increase in prices of Chicken (+9.03%), Wheat (+3.99%) and Milk (+1.18%) contributed to weekly inflation. A fall in the price of Bananas (-2.97%) and Tomatoes (-0.20%) helped moderate inflation this week.

What Else We’re Reading (Local)

  • The government’s estimate for GDP growth in FY 2021-22 is a surprisingly robust 5.97%. (Profit)
  • The Pakistani rupee continues to shatter records, crossing PKR 200 to the dollar for the first time in history. (Dawn)

What Else We’re Reading (International)

  • Rising numbers of subprime borrowers in the United States are missing loan payments, sparking fears of a 2008-like recession. (WSJ)
  • We’ve all watched sports highlights, but what about movies? Japan is cracking down on online pirates uploading 10-minute highlights of movies, which are becoming increasingly popular among young people. (FT)

Asad Pabani

Journalist, researcher and documentary filmmaker. Prior works featured in Dawn, Soch Videos and Pioneers Post.

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