Pakistan Looks at Import Curbs

Pakistan targets import curbs to ward off currency crisis

Abbasi to impose fresh curbs on luxuries in effort to avoid devaluing rupee

Shahid Khaqan Abbasi says currency devaluation is not on the table © Reuters

11 HOURS AGO by Kiran Stacey and Farhan Bokhari in Islamabad
Pakistan plans to tighten curbs on luxury imports to ward off a foreign currency crisis without devaluing the rupee, Shahid Khaqan Abbasi, the prime minister, has said.

Mr Abbasi said he would rather place further controls on imports in an effort to preserve fast-dwindling foreign reserves than allow the rupee to fall against other currencies.

Some experts believe Pakistan will have to request another bailout from the International Monetary Fund within a year.

In March, the Pakistani government made it harder to import non-essential items such as vehicles, mobile phones, cigarettes and jewellery by insisting buyers put down 100 per cent of the cash upfront.

The measure drew criticism that it would encourage people to trade instead on the black market. The IMF said it had been told by Pakistani officials that the restrictions would be removed within a year but Mr Abbasi told the FT his government was planning to impose more.

“We can put regulatory duties on certain items, especially luxury finished goods, that’s possible,” he said. “We probably will do more of that, yes definitely, to discourage imports.

“Currency devaluation is not on the table, it’s not. A lot of people thought it was . . . [but] it is important to have stability for the rupee,” said Mr Abbasi.

Pakistan is running out of foreign currency as exports and payments from Pakistanis abroad fall while imports rise.

The central bank had $14.3bn of foreign reserves as of September 15, according to the most recent data — enough to cover exports for about three months. That is down from a high of $18.9bn last October.

Pakistan has been importing more than it exports for some time, but the problem has been exacerbated by having to buy Chinese supplies for projects as part of the $55bn China-Pakistan Economic Corridor.

While the scheme is aimed at improving Pakistan’s energy supply and transport networks, many economists believe that in the short term it will push Islamabad back towards the IMF.

“We will have to go back to the IMF any time now,” said Muhammad Zubair Khan, a former commerce minister who worked at the IMF for more than a decade. “The current situation is not sustainable.”

Sakib Sherani, a former economic adviser to the government, warned: “From a balance of payments crisis, we will have a full-blown macroeconomic crisis, where private sector sentiment is hit, growth stalls, inflation is high, and the central bank has to act.”

As well as restricting imports, the country has also borrowed money at short notice from various international lenders to pay off its debts. In 2016 and early 2017, Pakistan borrowed $1.2bn from state-backed Chinese banks.

Many economists believe the only long-term way out of the crunch is to allow the rupee to fall, encouraging exports and discouraging imports.

But doing so has become politically sensitive, with ministers insisting on a strong currency while central bankers warning of the likely consequences.

In July, the rupee suddenly fell 3 per cent, having traded in a narrow band since 2015. Central bank officials said they had backed away from shoring up the currency, but the move drew an angry response from the government, which stepped in to boost its value again before replacing the acting governor.

Two months after that political skirmish Mr Abbasi said: “The government stepped in to defend the currency . . . [after] the acting governor forced it to drop. That was probably a sign of a lack of experience in the post.”