ANALYSIS
Gonzalo J. Varela
Pakistan’s import ban
Table 1: Coverage of SRO (I) 598, aka “import ban”
A
structurally large trade deficit coupled with a complex external environment that includes high commodity prices and rising interest rates have placed Pakistan in a tough position. Tosave foreign exchange, the Government of Pakistan on May 19thintroduced an import ban over 894 products, followed by a State Bank decision to require approvals for the imports of an additional 25 products. This note discusses the coverage of these measures, their likely effects on imports, exports, and revenues, as well as the policy alternatives the Government faces.
The coverage
T
Import Ban Lines affected Import value of products affected No of Share of FY21 FY22 (Jul-Mar) Products product lines affected In Mn As a In M As a USD share USD share of FY21 of FY21 imports of imports of affected affected products products
Intermediate Consumption Capital (except mobiles) Mobile phones Not classified Total
73 8.2% 659 73.7% 25 2.8% 1 0.1% 136 15.2% 894
145.5 5.6% 605.0 23.2% 76.2 2.9% 1,494.1 57.3% 286.3 11.0% 2,607.1
139.3 10.8% 494.6 38.3% 66.8 5.2% 244.0 18.9% 348.3 26.9% 1,293.1
As imports of mobile phones dropped between FY21 and FY22, imports of completely ‘completely knocked down’ (CKD) mobile phone kits soared, from US$52.8 million per month to US$146.9 million per month. Indeed, adding up imports of mobiles and CKD mobiles, on average, imports of mobiles and CKD mobiles reached US$177 million in FY21 and US$174 million in FY22 – virtually no change in import dollars spent. This shows that when firms or households faced increased costs of importing a given product (CBU mobiles), they found a good substitute (CKD mobiles). This is why, to prevent leakages from the import ban through these type of substitution effects, the ban was complemented by an additional import restriction: a State Bank Pakistan’s (SBP’s) import approval requirement that could be taken as a non -tariff barrier aiming at increasing import costs for a set of 25 products that had seen a sharp increase in imports between FY21 and the first nine months of FY22 (Table 2), among which feature CKD cars and mobile phones, in addition to a handful of other capital goods. In total, the import restrictions add up to about 9 percent of imports in FY22, or US$542 million per month.
he import ban that covers 894 products falls predominantly on consumer goods (659 out of the 894), but there are also intermediates and capital equipment products included (most prominently ‘mobile phones’ that are considered by trade statistics as ‘capital equipment’). The products covered by the ban accounted for 4.8 percent of imports of FY21 (US$2.6 billion), and for 2.24 percent of imports of the first nine months of FY22 (US$1.29 billion). The sharp decline in imports of targeted products is mostly explained by a decline in imports of mobile phones, in turn likely driven by a more depreciated rupee that increases the prices Pakistani households and firms pay for imported goods, and higher import duties to support localization of mobile phone production (Table 1).
is a Senior Economist in the Macroeconomics, Trade and Investment Global Practice of the World Bank. He is currently based in Islamabad, where he leads the trade program
COMMENT
The impact: imports, revenues, exports, policy instability The import restrictions are expected to curb imports. Yet, leakages are likely to occur through substitution, misreporting and smuggling. Some substitution might occur, for example, from CBU phones and cars to CKD or semi KD phones and cars. The extent of this substitution will depend on the conditions of the SBP approvals, which have not been disclosed(the fact that the criterium to grant these approvals is not known poses
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