Import bans are not the answer to balance of payments constraints, rather, they exacerbate the underlying problem, according to World Bank Senior Economist Gonzalo Verela.
A month ago I wrote this on why #import duties were not the answer to #Pakistan's Balance of Payments constraints. #ImportBans are certainly not the answer either. Rather, they exacerbate the underlying problem. Five thoughts. https://t.co/TYvUz4EjMy
— Gonzalo Varela (@gonwei) May 20, 2022
Discussing the backdrop of Pakistan’s persistent and large trade deficit on Twitter, the trade and macroeconomic researcher supported his narrative by comparing macro indicators impacting the country’s current account balance and the possible repercussions of the government’s ban on a number of imported goods.
In a series of tweets, Varela explained, “CAD results from a macro imbalance (Saving too low relative to investment, so foreign saving needed (borrowing) (CAD is the mirror image of borrowing from the rest of the world (financial account of BOP)). Fixing the CAD takes increasing saving (cool off demand)”.
According to the WB economist, the import ban in Pakistan reduces imports, but not the CAD because it also reduces exports. He said, “The way this import ban in Pakistan is done in SRO 598-1/2022 for the main items banned (cars, mobiles) looks more like an incentive to domestic producers NOT TO EXPORT than an attempt to save forex. In fact, it gives them a generous monopoly power”.
Simply put, the new ban...
Read Full Story: https://propakistani.pk/2022/05/20/import-ban-and-taxes-will-decrease-pakistans-forex-reserves-in-reality-wb-economist/
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