Pakistan's effort to curb trade deficit leading to crisis of rising unemployment
Pakistan’s effort to curb trade deficit by restricting imports is rapidly morphing into a bigger crisis of rising unemployment, according to a report.
Official data on unemployment is sketchy at best on the issue but by taking the listed companies as a proxy for what’s happening in the rest of the economy, the trend becomes crystal clear.
“An increasing number of businesses are either scaling back operations or shutting down production mainly for one reason: the unavailability of imported raw materials. Dozens of companies have issued notices of production halts in recent months. Curbing imports of raw materials to improve the trade balance is tantamount to cutting one’s nose to spite one’s face,” according to the Dawn newspaper report.
All production units of Dawlance, a private company with Turkish sponsors, have stayed shut since the start of 2023. The company started facing import-related problems back in May 2022.
The central bank allowed it to make do with a quota of 38pc of its preceding year’s imports in August last year. But the situation became even worse as bureaucrats and bankers began playing a “pick-and-choose” game with import orders, the company CEO told me in an interview.
Fridges and refrigerators have hundreds of components. No product can be shipped if it’s missing even the smallest of parts, he said. As a result, the entire production line came to a quick standstill.
Letting the salary-drawing bureaucrats pick winners and losers among businesses even caused a shortage of X-ray films in the country.
The article quoted a soap maker saying at a Karachi Chamber of Commerce and Industry (KCCI) town-hall meeting that his factory had been closed for months. Banks weren’t clearing his letter of credit for oil that was used as a natural perfume in very small quantities, he said. It was the same KCCI event that left the central bank governor red-faced with embarrassment after businessmen hurled all kinds of abuses at him for imposing arbitrary import restrictions.
According to noted economist Hafiz A. Pasha, the number of unemployed people will increase by over 2 to 8 million by the end of 2022-23. Given that the labour force consists of 75.3m people, he said the unemployment rate will approach 10pc “probably for the first time”.
The upcoming torrent of unemployment is the direct outcome of a self-inflicted, conscious decision. It’s thrown the baby out with the bathwater. Exports also dropped 23pc in February on a year-on-year basis.
Those who took this decision knew they lived far removed from the immediate realities of ordinary life. Structural flaws built over decades can’t be fixed in a jiffy, reported the paper, adding that the state is unloading its heaviest burden onto its weakest people, and suggesting that it’s time for policymakers to push the reset button on import restrictions.
Pakistan is facing growing economic challenges, with high inflation, sliding forex reserves, a widening current account deficit and a depreciating currency.
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