Rising panic over blocked imports in crisis-hit Pakistan

BUSINESS chiefs in Pakistan are clamouring for the cash-strapped government to allow the entry of imported manufacturing materials stuck at a key port, warning that failure to lift a ban on imports would leave millions jobless.

Faced with critically low US-dollar reserves, the Pakistani government has banned all imports except for essential food and medicine, until a lifeline bailout agreement is struck with the International Monetary Fund (IMF). Unemployment has deepened as industries such as steel, textiles and pharmaceuticals are barely functioning. Thousands of factories have been forced to close.

The steel industry has warned of severe supply-chain issues caused by a shortage of scrap metal, which is melted down and turned into steel bars. Prices of the bars have reached record highs in recent weeks.

Wajid Bukhari, head of the Large Scale Steel Producers Association, said: “We directly feed materials to the construction industry, which is linked to some 45 downstream industries.”

“This whole cycle is going to be jammed,” he warned, adding that smaller factories had already shut after exhausting their stocks, while some larger plants were just days from closing.

With an import bill of around US$150 million per month, the steel industry said its operations directly and indirectly affected several million jobs. Latest data from Pakistan’s central bank showed that its foreign exchange reserves had plunged to just US$2.9 billion – enough for less than three weeks of the country’s total imports.

Echoing the calls for steel and machinery to be exempted from the import ban, the Constructors Association of Pakistan said: “This situation triggers fears the construction industry will close down very soon, plunging thousands of labourers into unemployment.”

Years of financial mismanagement and political instability have damaged Pakistan’s economy, exacerbated by a global energy crisis and devastating floods last year that submerged a third of the country.

A shortage of raw materials, soaring inflation, rising fuel costs and a plummeting rupee have battered manufacturing industries. An IMF delegation left Pakistan last Friday, after urgent talks to revive a stalled loan programme ended with no deal, leaving lingering uncertainty for business leaders.

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In the old Silk Road city of Peshawar, factories producing everything from glass to rubber and chemicals, mostly for the neighbouring Afghan market, have closed one after the other in the past several months.

“Around 600 have closed, while many are operating at half capacity,” said Malik Imran Ishaq, president of the Industrialist Association Peshawar, which represents 2,500 factories.

“The entire business community is in serious trouble.”

Shahid Sattar, secretary-general of the All Pakistan Textile Association, said the textile industry should be prioritised. “We are the mainstay of the country’s exports,” he told AFP. “If you don’t have exports, how will you shore up your foreign exchange reserves? Then consequently, how will the economy recover?”

Textiles and garments account for about 60 per cent of Pakistan’s exports; the industry employs some 35 million people, processing items such as towels, underwear and linen for major brands across the world. After floods devastated domestic cotton crops last summer, the sector has been importing a significant amount of raw fabric.

Factory owners appealed to the finance minister last month for “direct intervention” to unjam the backlog, which has also affected dyes, buttons and zippers.

“The textile industry has more or less come to a grinding halt in Pakistan. We don’t have raw materials to operate our mills,” Sattar said. Around 30 per cent of the country’s textile mills have shut down operations completely, while the rest are working at less than 40 per cent capacity.

Tauqeer ul Haq, the head of the Pakistan Pharmaceutical Manufacturers Association, said 40 medicine factories were on the brink of closure because of a lack of key ingredients.

Pakistani economist Kaiser Bengali said the supply-chain crisis was “feeding inflation and also hitting the government’s revenues”. It also escalated unemployment and fuelled poverty, with a large proportion of construction and factory workers in Pakistan paid daily.

“On average, during regular production, workers are paid for around 25 days (per month); but now they are getting wages for 10 to 15 days. Some companies have even suspended their production and workers will only get paid once manufacturing resumes,” Bengali told AFP.

Nasir Iqbal, an economist at the Pakistan Institute of Development Economics, said export bans like the one currently in place “can never be a sustainable solution”.

Under-pressure Finance Minister Ishaq Dar last week said that businesses had to “let the money come in from the IMF” before letters of credit would resume for imports.

Meeting the conditions of the bailout, such as by raising petrol and energy costs, is expected to increase inflation. But doing so should also pave the way for further financial support from friendly nations. AFP