Macro Analysis /
Pakistan

Pakistan: Emergency Economic Plan – Government bans luxury items

  • The government has announced a complete ban on the import of nearly 40 items, in view of the weak FX reserves position

  • The import ban may reduce imports and the CAD, but tax collection may be curtailed at the import stage

  • Domestic sectors which could benefit from import substitution include Automobiles, Telecom (AIRLINK), Appliances & Food

IMS Research Team
Intermarket Securities
20 May 2022

The government has announced a complete ban on the import of nearly 40 items deemed unnecessary/luxury in view of the weak Fx reserves position (less than 1.5 months import cover) and continued pressure on the currency. Some of these imports include auto CBUs, mobile CBUs, and electronic appliances (full table below). In FY21, these imports totaled c US$1.3bn (2.3% of the import bill).  The government estimates annual savings of US$6bn (c 2% of GDP), but this may also include other measures such as increased regulatory duties on more items.

The import ban should reduce imports and the current account deficit (US$13.8bn in 10MFY22), but tax collection may be curtailed at the import stage. Some of the benefits may also be eroded by an increase in informal activity/smuggling. An IMF programme will still be needed.

Domestic sectors which could benefit from import substitution include Automobiles, Telecom (AIRLINK), Electronic Appliances (PAEL, WAVES) and Food (NESTLE, NATF, SHEZ). Other sectors such as Flat Steel (ISL, ASL) may be indirect beneficiaries. That said, the longevity of this plan is questionable, and it is unclear if it enjoys the blessings of the IMF, where the 7th programme review is currently underway.