KARACHI: Finance Minister Miftah Ismail said on Friday that the government would control imports for the next three months, even if it came at the cost of slower growth, he admitted the government did not have an immediate solution that would avert an economic crisis.
“We would not allow imports to increase for at least three months, which could impact growth, (but) we have no other choice,” said Miftah at the gong ceremony held at the Pakistan Stock Exchange (PSX) on Friday.
He added that car, mobile and appliance assembling units have little value addition and 95% of their cost of manufacturing is based on imports.
Talking about the exchange rate, Ismail noted that dollar outflows had been surpassing inflows, which is why the rupee had fallen sharply against the greenback over the last month.
He said that the government would allow imports for these industries since they also generate employment but not at the moment.
“The first priority is to stabilize the economy,” he said.
Meanwhile, he added that there may be other reasons but as a trade economist, he sees direct economic fundamentals affecting the currency.
He said imports of $7.7 billion against $2.9 billion in exports in one month would certainly add pressure on the rupee.
He added that Pakistan witnessed a trade deficit of $48.7 billion in the previous fiscal year, and an ‘unsustainable’ current account deficit of nearly $18 billion.
“No country can sustain such current account deficits,” he stressed.
He said the government measures to reduce the import bill have led to rupee’s recent appreciation against the US dollar.
“The import bill was reduced from $7.7 billion to $4.9 billion, which solved the problem,” he said.
To a query, Miftah played down that banks were responsible for the recent hammering of the rupee, and said incoming dollars were low against outgoing dollars and under such circumstances, the currency was bound to depreciate.
“When dollar inflows are greater than outflows, the rupee would stabilize,” he said.
The statement comes at a time when the currency has witnessed a reversal in fortune and appreciated near the 223 level.
“We took hard decisions such as increasing the petroleum rates, which led to an increase in inflation, but we had no other choice to prevent a default,” he said.
The finance minister added that the country is in “a very comfortable position in terms of energy supply and energy security”.
Ismail said the country had been close to default when the PML-N-led government came into power which is why he approached the International Monetary Fund (IMF) days after becoming the finance minister.
“We did not have any other option,” he insisted. The country had $10bn in reserves back then while it had to pay back $21bn in the next year. “This is not even debt servicing, just debt repayment.
“So the IMF had to come, it will come. Then the World Bank will come; then ADB (Asian Development Bank); then a Chinese bank, Asian Infrastructure Bank, has also said that it will give money if the World Bank does. Even friendly countries were politely encouraging us to get money from the IMF because no one wants to back a sinking venture.”
The government had to take some “very difficult decisions” as a result, Ismail said. “We raised petrol prices and inflation increased but if the dollar payments are greater than income, how far can we intervene? There are IMF restrictions against intervention. The first thing is to remain solvent and save ourselves from default.”