Non-machinery imports are rising

As per the PBS data, imports are up by 22 percent to $14.3 billion in 1QFY18; within it the machinery imports growth remained almost flat. Barring machinery, imports are up by 28 percent. Did some say machineries are jacking up the import bill?

Yes, machinery imports, started moving up from FY14 - CAGR of plants and machinery imports stood at 20 percent during FY14-17. In terms of GDP, machinery imports are up from 2.5 percent in FY13 to 3.9 percent in FY17.

The PML-N government, partially rightly so, kept on saying that high imports growth is encouraging as fixed investment is being made for future production. It’s also evident from the fact that machinery imports as percentage of total imports moved from 13 percent in FY13 to 22 percent in FY17.

Now in FY18, machinery imports are still high; but not growing. While the expansion has its ramification on other imports which are moving too fast to handle. 1QFY18 is demonstrating the phenomenon of other imports growth. The biggest surge is observed in petroleum group - up by 38 percent in Jul-Sep17 to $3.2 billion. And it is not really a low base effect that is doing the trick as the group imports were up by 30 percent in FY17, having fallen 29 percent and 21 percent respectively in FY16 and FY15.

The drop in FY15-16 was due to low oil prices which still are hovering in its low band. It is purely the higher consumption both in power generation, and transportation that is making petroleum imports alarmingly high. In power generation, the onus is shifting towards RLNG whose imports reached $397 million in Jul-Sep17 (up by 57%). The usage of FO is stagnating ever since RLNG is coming in the mix as FO consumption was 9.5 million tons in FY14 and it was 9.6 million ton in FY17 while RLNG imports, from nothing in FY14, reached $1.3 billion in FY17. Thus, FO is not falling but RLNG is simply adding to the pie.

In case of petroleum products, import quantity is up by a whopping 61 percent to $1.9 billion while crude imports quantity is up by 31 percent. This growth is fairly on higher base as in FY17, petroleum products and crude quantity imports were up by 46 percent and 37 percent respectively.

The increase in petrol is simply not due to industrial and power generation expansion; rather keeping the low prices has jacked up transportation consumption. On the flip, diesel which is used in agri and other products is not up proportionately. The need to curb the demand of petrol by jacking up prices cannot be overemphasized.

Anyhow, a low inflationary era whilst easing monetary and exchange rate polices have enhanced the purchasing power as more cars are being bought and more fuel burnt. Transport group imports are up 38 percent to $961 million in 1QFY8 - both CBU and CKD imports are moving up at higher pace. The local car assembling is growing fast, amid low localization, CKD imports are moving fast.

The story of agriculture imports is no different as fertilizer, plastic and medical products import bill is not coming down. In case of metal imports, the heightened construction and automotive activities have their toll on iron and steel scrap (quantity import up by 75%) and iron and steel (quantity import up 48%). Both the products combined import bill crossed $1 billion in 1QFY18, exhibiting an increase of 58 percent year on year.

The other element that is showing the higher purchasing power, in supposedly an agrarian economy, is fast increasing food imports - up by 19 percent to $1.6 billion in 1QFY18. Palm oil increased by 38 percent to cross $500 million in a quarter. How can Pakistan not make palm oil at home? Apart from tea and pulses, all food items imports bill growth is in double digits.

Just a food for thought that food items trade deficit is at $880 million in the 1QFY8, with food imports more than double of exports. Long live consumerism!