August imports at $6.5 billion have created quite a stir among keen observers of the economy and in the currency market. All sorts of comparisons have started vs the previous current account disaster, and there have been calls for the authorities to step in and arrest the import surge. There is good reason too, as this is the first ever instance of imports crossing $5 billion for six straight months.
August detailed import numbers won’t be out for another two weeks. Here is an attempt to have a closer look at the last five months, from March 2021, which marked the beginning of the $5 billion+ monthly import trend. For imports where updated data is available, the value has gone up by 27 percent over March-July 2019 (2020 has been excluded for obvious reasons, as that will lead to unfair comparison). This is in line with 24 percent year-on-year growth for all other imports. The selected categories represent exactly 50 percent of total imported value – both for 2019 and 2021.
The ongoing global commodity price spiral is well documented, and some price related import surge is in order. The biggest import category, petroleum (minus LNG), has seen the volumes grow 23 percent over 2019. The unit price decreased by double digits, limiting the growth to 7 percent. Based on data from PSO and Pakistan LNG Limited, the LNG imported price stayed largely similar during the two comparable periods – and imported value at $1.45 billion for both periods suggest the quantities have not changed either.
A lot of commentators have been calling for the petroleum demand to be checked, calling it a result of the government’s tax relief on petroleum products. While there is no denying the relationship between petroleum price and demand, especially in case of gasoline, the trend plotted over the past decade hardly shows this as extraordinary price led growth.
If anything, the demand trend struggled for two years (2019 and 2010), before returning to its regular pattern. In case of HSD, the demand is still substantially below the peak from last year. As has been observed, the demand is proving to be sticky at current high prices in relation to last year, showing organic growth. Another significant portion of petroleum group imports gets consumed for power generation – and the need to burn more imported fuel is rising with every passing day, for various reasons. Not sure if there is much to curtail on that front either.
In the food group, palm oil, pulses and tea are the front-runners. Palm oil has clearly been driven entirely by prices – which have almost doubled, doubling the import bill, as imported quantity remained unchanged. Goes on to show that demand has not decreased drastically despite the 100 percent increase in price. Should higher tariffs be placed on a critical food item is for the policymakers to decide, but the demand at high rates is undeterred.
Pulses’ import has been an intriguing watch – more than doubling, largely due to 70 percent increase in volume of imports. Pakistan’s own pulses’ production went up by 60 percent year-on-year. Who could guess that Pakistanis would suddenly become so fond of daal in less than two years. The only explanation is that more and more of pulses are being routed through legal channels. There is not much curtailment one can expect on this front either. The case of tea is largely similar, with different magnitude, but reduced incidence of smuggling surely appears to have a big impact on the overall import equation.
The textile imports on the other hand are quantity driven for reasons documented extensively and are likely to stay this way (see: Cotton import bill: no cause for panic, published September 6, 2021). At best, one-tenth of the group’s exports look an area where tariff measures could help, as Pakistan has suddenly found its worn clothing imports double in volume and value terms. That makes up for no more than 1 percent of the entire import bill, though.
Iron and steel imports are entirely driven by price and the quantity has remained stagnant over 2019, which was a period of economic slowdown. There has been some inexplicable rise in fertilizer imports over the past two months worthy of being investigated. Other than that, medicinal imports are well-explained, and the rise in plastic imports is again price driven.
It increasingly appears that the other half of the import may well be an area where some momentum can be pulled back. Areas such as automobile come to mind. Even mobile phone imports are largely believed to be a result of the authorities’ effort to curb smuggling. Pakistan’s net dollar outflow may still not be vastly different from 2 years ago. The change could very well be attributable to better documentation.