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Increase in imports leads to economic growth?

After facing challenges on the export front for the last few years, Pakistan has shown robust recovery in exports during this year (2017-18). According to the provisional data of Pakistan Bureau of Statistics, exports have registered a broad-based growth of 13% over this fiscal year. Moreover, Pakistan’s imports bill has also registered a growth of 15% during the same period.

Pakistan’s import bill is inflated by $7.95 billion for the fiscal year 2017-18. The primary drivers were petroleum, transport, and metal groups amid weaker rupee and price hike. Official figures released by Pakistan Bureau of Statistics (PBS) revealed that imports surged by $7.95 billion while export improved by $3 billion broadening trade deficit by 15.95%. The rupee devaluation could only favor the trade balance if the imports and exports are responsive enough. The rupee slumped by nearly 15.8 percent against the dollar over the fiscal year 2018. Import basket of Pakistan is heavily weighted by inelastic or less responsive commodities.

The import composition for FY18 includes 23.7 percent petroleum group, 19 percent machinery, 14.65 percent of agricultural and other chemical group. Food group accounted for 10.2 percent, metal 8.8 percent, transport 7.2 percent, textile 6 percent, miscellaneous 2.1 percent, and all other imports constitutes 8.3 percent.

The petroleum group witnessed the largest hike. The amount comes to slightly above $3.5 billion which is roughly 44 percent of the overall increase of $7.95 billion. The value of the petroleum group increased 32.1 percent to $14.4 billion in FY2018, compared to $10.9 billion in the FY2017.

In the petroleum group, petroleum products posted a growth of 9.3 percent in import value. However, quantity regarded 8.3 percent decline. Similarly, petroleum crude import value is increased by 66 percent with 29.2 percent increase in quantity. It indicates that the major chunk of increase is contributed by higher prices. The largest percentage increase in import value within the petroleum group was reported by Natural Gas Liquefied with 86 percent followed by petroleum crude of 66 percent. The escalation of international oil prices also contributed much in enhancing import bill of petroleum commodities.

The second component in the import bill with a large increase was transport group. It witnessed 31.7 percent increase from $3.3 billion to $4.4 billion. The imports of sub-group aircrafts, ships and boats surged by more than double (i.e. 117.5 percent) stood at $1.14 billion in FY18, compared to nearly $525 million in FY17. The second sub-category with remarkable growth was completely knocked-down (CKD)/Semi knocked-down (SKD) units. It expanded 31.6 percent from $1 billion in FY17 to $1.32 billion in FY18. Further breakdown of the CKD/SKD category evident that the buses, trucks and other heavy vehicles had grown by 60.9 percent alone. The higher demand for commercial vehicles complements the various CPEC power and infrastructure projects because raw materials and machineries had to be transported.

The metal group ranked third for pulling import bills up in percentage terms. It stretched the import bill by $944 million accounting 21.4 percent increment. The import value of Iron and Steel scrap sub-category faced the significant expansion of 41.3 percent but 23.5 percent growth was posted by quantity. It suggests the improvements in prices. The elevated demand is primarily led by CPEC and it complements the metal industry of Pakistan.

However, the machinery group remained alone that recorded some decline. It dwindled by 1.58 percent from $11.7 billion to $11.5 billion. Even after a marginal decline, the machinery group is the second largest import category in absolute terms. In the wake of China Pakistan Economic Corridor (CPEC), capital goods contributed much to the import bills previously now some adversity in trend is recorded. The sub-groups that faced a substantial decline are construction and mining machinery and power generating machinery with 28.4 percent and 12.2 percent, respectively.

Food group, textile group, agricultural and other chemicals group, and miscellaneous group correspond to 0.68 percent, 9.16 percent, 17.6 percent, and 5.87 percent increase, respectively. Moreover, all other items imports enlarged by 21 percent.

The consistent increase in imports is harmful to economic growth of Pakistan is parallel to the theory of export-driven growth strategy. This strategy view export as beneficial and import is non-beneficial for economic growth. However, in Japan Lawrence and Weinstein found that import may enhance the productivity of a country through learning, innovation, and competitive pressures. Economic growth may increase with the imports of high tech products and machineries to enhance productivity. Pakistan should control the imports of consumption goods and promote the imports of technology-based products and machinery. New Dams will play a significant role in the import bill of petroleum products. The said strategies may enhance productivity and growth in the country.

Usama Ehsan, "Increase in imports leads to economic growth?," Business Recorder. 2018-09-01.
Keywords: Provisional data , Primary drivers , Official figures , Significant expansion , Competitive pressures , Petroleum products , Pakistan , PBS , SKD , CPEC