Pakistani government passes off car imports as capital goods
Extra consumer goods import behind trade deficit
From MEHTAB HAIDER
ISLAMABAD — A major chunk of imported items under the category of machinery is consumer goods which is the main cause of worrisome in the wake of projected trade deficit up to $10 billion this fiscal, sources told The Nation Wednesday.
Out of total imports of $22 billion in last financial year 2004-05, over $11 billion imports were consumer-related items only, which is not a positive sign for the national economy.
“More than 25 per cent imported items in the category of machinery are mainly consumer related items,” the sources quoted data.
According to them, this ratio will increase this fiscal ending on June 30, as all consumer goods such as mobile phone, cars, television sets and refrigerators showed an increasing trend in the first six fiscal months.
To justify the projected trade deficit up to $10 billion during this fiscal, policy makers are continuously saying that machinery is being imported which will result into more economic activity.
“This is factually wrong and they are misguiding people with jargons of an increase in machinery import,” the sources said.
To put this into perspective, if auto imports (cars for personal, non-commercial use), mobile phone sets and consumer durables are added together for FY05, it would appear that around 25 per cent of total machinery imports are related to consumer goods, the sources said.
The situation is more depressing as the policy makers do not seem to ratify their mistake rather are continuously hiding facts from the masses.
The mobile phone import is likely to cross $1 billion this fiscal while import of new and old cars under various schemes will be over $900 million. The import of machinery, which actually generates economic activities, will not be over $2.5 billion of the calculated $26 to $27 billion.
On the other hand, policy makers draw their satisfaction in the presence of this fact that Pakistan’s external account is likely to remain well funded over the next few years as a result of international commitments for quake assistance.
However, the underlying cause of a widening trade imbalance needs to be addressed irrespectively, especially when it is clear that a significant portion of ‘machinery’ imports is not capital goods at all.
The non-oil, non-food (NONF) trade balance has moved from a surplus of almost $1 billion in 2004 to nearly $1.1 billion in 2005.
The fact that the bulk of imports under capital goods is for domestic consumption rather than to increase the productive capacity of the export sector will not allow any alleviation of the stress the rupee (and forex reserves) is likely to face from this situation.
By keeping the rupee stable and hence over-valued given the inflation differentials between Pakistan and its trade competitors - policymakers are compounding the problem. The deterioration in the trade account has occurred in response to run-away growth in imports. Non-oil imports rose 35 per cent in 2004 and in 2005. For 2006, we project non-oil imports of around $22.5 billion, with an almost unchanged pace of growth.
While the import of ‘machinery’ is the principal contributor to the overall non-oil, non-food import bill, this category is clearly inaccurately reported. For the fiscal 2005, the import of personal vehicles was $750 million constituting 13 per cent of the overall ‘capital goods’ category.
Similarly, the CBR data suggests that the import of mobile phone handsets to the tune of $300 million to over $1 billion annually is being categorized as ‘capital goods’ (under PCT 85-25- 2010).
From MEHTAB HAIDER
ISLAMABAD — A major chunk of imported items under the category of machinery is consumer goods which is the main cause of worrisome in the wake of projected trade deficit up to $10 billion this fiscal, sources told The Nation Wednesday.
Out of total imports of $22 billion in last financial year 2004-05, over $11 billion imports were consumer-related items only, which is not a positive sign for the national economy.
“More than 25 per cent imported items in the category of machinery are mainly consumer related items,” the sources quoted data.
According to them, this ratio will increase this fiscal ending on June 30, as all consumer goods such as mobile phone, cars, television sets and refrigerators showed an increasing trend in the first six fiscal months.
To justify the projected trade deficit up to $10 billion during this fiscal, policy makers are continuously saying that machinery is being imported which will result into more economic activity.
“This is factually wrong and they are misguiding people with jargons of an increase in machinery import,” the sources said.
To put this into perspective, if auto imports (cars for personal, non-commercial use), mobile phone sets and consumer durables are added together for FY05, it would appear that around 25 per cent of total machinery imports are related to consumer goods, the sources said.
The situation is more depressing as the policy makers do not seem to ratify their mistake rather are continuously hiding facts from the masses.
The mobile phone import is likely to cross $1 billion this fiscal while import of new and old cars under various schemes will be over $900 million. The import of machinery, which actually generates economic activities, will not be over $2.5 billion of the calculated $26 to $27 billion.
On the other hand, policy makers draw their satisfaction in the presence of this fact that Pakistan’s external account is likely to remain well funded over the next few years as a result of international commitments for quake assistance.
However, the underlying cause of a widening trade imbalance needs to be addressed irrespectively, especially when it is clear that a significant portion of ‘machinery’ imports is not capital goods at all.
The non-oil, non-food (NONF) trade balance has moved from a surplus of almost $1 billion in 2004 to nearly $1.1 billion in 2005.
The fact that the bulk of imports under capital goods is for domestic consumption rather than to increase the productive capacity of the export sector will not allow any alleviation of the stress the rupee (and forex reserves) is likely to face from this situation.
By keeping the rupee stable and hence over-valued given the inflation differentials between Pakistan and its trade competitors - policymakers are compounding the problem. The deterioration in the trade account has occurred in response to run-away growth in imports. Non-oil imports rose 35 per cent in 2004 and in 2005. For 2006, we project non-oil imports of around $22.5 billion, with an almost unchanged pace of growth.
While the import of ‘machinery’ is the principal contributor to the overall non-oil, non-food import bill, this category is clearly inaccurately reported. For the fiscal 2005, the import of personal vehicles was $750 million constituting 13 per cent of the overall ‘capital goods’ category.
Similarly, the CBR data suggests that the import of mobile phone handsets to the tune of $300 million to over $1 billion annually is being categorized as ‘capital goods’ (under PCT 85-25- 2010).
posted by India News Watch at 1:48 PM
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