The State Bank of Pakistan has imposed 100 percent cash margin requirement on import of hundreds of items to restrict imports and reduce trade gap which has widened up to $20.2 billion during the first eight months of the current fiscal year. According to experts, the banks has used margin requirement as a tool to control the flow of funds and restrict the import of commodities which are not considered essential for the national economy. The move will keep the foreign exchange reserves at certain level to enable the import of goods required for a growing economy. According to a report of the Pakistan Bureau of Statistics, the record high trade deficit during July-February reveal vulnerabilities in the economy. The government is already negotiating for new loans to maintain its forex reserves in the background of falling remittances,comparatively low foreign direct investment and rising oil prices. The government will have to minimize its reliance on loans at high markup rates.
According to the report, the exports downed by 3.9 percent to $13.3 billion during the last eight months, which is $541 million less than the volume of exports during the corresponding period of the last year. In contrast, the import are increased by 16 percent to $33.5 billion during the same period. The import bill is $4.6 billion higher than the previous year.The exports remained 53 percent of the annual target of $24.8 billion in eight months, showing that the government has failed to arrest the falling exports like the previous three years despite offering two-bailout packages for exporters during the last one year. As a matter of fact, money is not the only issue to streamline the economic affairs. The prime minister has offered Rs180 billion export package recently without addressing the root causes of the problem.
There is a need to improve soft image of the country, cut the cost of doing business, create conducive environment for foreign investors by providing them tax relief and improve energy supply. Instead of providing tax relief, the government has reportedly imposed new taxes of Rs1.2 billion on businesses and banking transactions, increasing the cost of doing business in the country. It dilemma of the policymakers that they could not maintain balance between tax incentives and tax collections. A general formula is that more are the incentives, more are the collections as incentives spur business and trade activities. However, experts fear the latest step of the State Bank to control imports could increase smuggling activities in the country which is already rampant under alleged Afghan Transit Trade.
