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Trade Trends News
26-06-2023
Pakistan has suspended imports of bread, cookies, ketchup and other prepared foods, juices and soft drinks from abroad as dollar reserves have hit rock bottom. The ban will come into effect on June 25, the country's media Geo News said, citing government sources.
Farhat Siddiqui, secretary general of the Karachi Wholesale Grocers Association, an organization of grocers in Karachi, the capital of Pakistan's Sindh province, said in a statement Monday that banks have stopped providing traders with dollars for importing food and beverages.
Importers forced to suspend imports
Commercial dealers across the country have been forced to suspend imports due to the unavailability of U.S. dollars. The Karachi Wholesale Grocers Association reported that banks have refused to provide the necessary foreign currency, leaving importers with no choice but to stop shipments. A meeting held by the association concluded that no shipments should be made after June 25.
According to Karachi port sources, the government has issued an order not to clear any cargo after June 25. Importers will be responsible for clearing any cargo already at the port or in transit. If any cargo is handled after June 25, the importer will not be responsible for clearance.
Foreign exchange reserves depleted
Pakistan's dollar crisis is largely attributed to the depletion of the country's foreign exchange reserves over the past year. Pakistan's foreign exchange reserves have been at their lowest level due to years of corruption, waste and mismanagement. The economy suffered a major setback due to devastating floods in northwest Pakistan and disruption of oil supplies during the Russian-Ukrainian war. For a country to maintain economic equilibrium, the central bank must have at least three months of dollar reserves, while Pakistan's central bank has only two weeks of import reserves. These events have made it difficult to pay the high tariffs on imported oil, thus exacerbating the current crisis.
Political and Economic Challenges
In April 2022, Imran Khan was voted out of office, triggering a political crisis and further worsening economic conditions. The new Prime Minister, Shehbaz Sharif, faced difficulties in arranging loans, leading to frequent visits to Saudi Arabia and the United Arab Emirates (UAE) in search of a bailout package. Political and economic instability has further constrained Pakistan's ability to respond effectively to the dollar crisis.
Farhat Siddiqui said that business leaders will soon meet with importers on the issue.
He also said there are thousands of containers with food and beverages from abroad at Karachi port. These containers have been accumulating since early June but cannot be redeemed due to scarcity of dollars. If this situation persists, there could be a food and beverage supply crisis in the coming days.
The business leader expressed anger at the State Bank of Pakistan (SBP), Pakistan's central bank, for ordering a halt to the supply of dollars, saying in a statement that "the policy being adopted by the SBP is wreaking havoc on the country's economy."
High Inflation and Economic Hardship
Pakistan is currently grappling with 50 years of high inflation, which has led to a large portion of the population falling into poverty. To ease the burden on people amid soaring prices, the government set up free wheat flour distribution centers in April. Unfortunately, a stampede occurred at these centers, killing many and setting back the program. Pakistan's high inflation, high unemployment and low GDP growth rates put the country at a disadvantage compared to its neighbors.
Dependence on Foreign Loans and Debt Repayment
Pakistan's economic model is heavily dependent on foreign loans, leading the government to rely on external aid and putting the country at risk of bankruptcy. In the coming years, Pakistan faces the challenge of repaying nearly $80 million in debt, a large portion of which is owed to China, a staunch supporter. Despite recent reports of a $1 billion loan from China, the sustainability of such aid remains uncertain.
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