KARACHI: State Bank of Pakistan (SBP) on Friday said that the imports continued to surge and reached a historic peak of $38.5 billion in July-March 2016/2017.
In its third quarterly review (July-March 2016/2017) on state of Pakistan’s economy, the SBP said that most of this increase was observed in third quarter of fiscal year 2016/2017, when imports of petroleum, machinery and chemical items all rose significantly: in fact, machinery and petroleum imports contributed around 55 percent to the overall increase in imports during the period.
Imports of petroleum products during Jul-Mar FY17 were entirely driven by higher quantum product imports, with crude oil shipments declining during the period on YoY basis. The rise in petroleum product imports reflected strong domestic demand by the transport and power sectors: sales of high speed diesel (HSD) and petrol increased by 12.9 percent and 17.4 percent YoY respectively.
Meanwhile, furnace oil imports rose by 7.3 percent YoY during the period.33 Infrastructure development activities under CPEC boosted the demand for HSD, which is mainly used by heavy commercial vehicles.
This was also reflected by rising imports as well as sales of heavy vehicles. On the other hand, the increase in furnace oil imports corresponded with a rise in power generation from the fuel during the period.
Imports of all major non-oil industries rose significantly during Jul-Mar FY17. This was entirely an outcome of higher quantums, as the unit values of most items (except palm oil) fell during the period.
Machinery imports contributed more than 40 percent to the overall import growth during Jul-Mar FY17, with power, electrical and construction-related equipment leading the charge.
Meanwhile, an increase in textile machinery (mainly for spinning and weaving) was observed in Q3-FY17. This basically reflects higher investment by the sector, as firms start taking benefit of various policy support measures (like the export package announced in January 2017, the removal of sales tax on import of textile machinery, and record-low interest rates).
Besides, strong domestic construction activities (both CPEC and non-CPEC related) have led to a sizable increase in demand for cement in the country. To cope with this surging demand, many cement manufacturers are investing in capacity expansions. This, in turn, has boosted the import of related machinery, which are classified in the “other machinery” category. The low interest rate environment also benefitted cement manufacturers, which was reflected in the higher bank borrowing.
To promote the information & communication technology sector, the exemption of sales tax on import of laptops and personal computers was granted in the budget 2016-17. This measure has led to a significant increase in the import of these products; laptops and personal computers have a 36 percent share in total imports of office and data processing machinery during Jul-Mar FY17.
The rise in food imports during Jul-Mar FY17 was mainly led by higher purchases of palm oil and pulses. In case of palm oil, the recovery in its international prices in FY17 is entirely responsible for the 11.5 percent YoY increase in its imports in Jul-Mar FY17; quantum imports actually declined by 7.0 percent YoY during the period (Table 5.6).41 Meanwhile, lower domestic production of pulses could be the possible reason which necessitated higher imports of pulses to ensure sufficient supplies in the domestic market.
Summing up, the trade outlook is likely to continue with the prevailing trend in the remaining period of FY17. The SBP further forecast that the import bill will remain high due to robust demand for fuel, machinery and food items, whereas exports may get some boost in the wake of recently announced fiscal incentives, improved business environment, and ease in energy supplies.
