Rising panic over blocked imports
ISLAMABAD – Pakistan’s business leaders are asking the cash-strapped government for permission to import manufacturing materials from Karachi, where they fear that millions of people will be jobless if the ban is not lifted.
In the face of low US-dollar reserves the government banned imports of all essential food and medicine until a rescue plan is reached with the International Monetary Fund.
Steel, textiles, and pharmaceuticals industries are struggling to function, leading to thousands of factories closing and increasing unemployment. The shortage of scrap metal that is melted down into steel bars has caused severe supply-chain problems for the steel industry. Over the past few weeks, bars have reached record-breaking prices.
“We directly feed materials to the construction industry which is linked to some 45 downstream industries,” said Wajid Bukhari, head of Pakistan´s Large Scale Steel Producers Association. “This whole cycle is going to be jammed.”
He stated that small factories have closed down due to exhausting stock. However, larger plants are still within days of closing. The steel industry has an import bill of approximately $150 million per month and its operations directly or indirectly impact several million workers.
Latest data from the central bank said foreign exchange reserves had plunged to just $2.9 billion — enough for less than three weeks of imports.”This situation triggers fears the construction industry will close down very soon, plunging thousands of labourers into unemployment,” the Constructors Association of Pakistan said, echoing calls for steel and machinery to be exempted from the import ban.
Years of financial mismanagement and political instability have damaged Pakistan´s economy — exacerbated by a global energy crisis and devastating floods that submerged a third of the country.
Inflation, rising fuel costs, and a plummeting rupee all have impacted the manufacturing industry.
An IMF delegation left Pakistan on Friday after urgent talks to revive a stalled loan programme ended with no deal, leaving lingering uncertainty for business leaders.The textile and garment industry is responsible for around 60 percent of Pakistan´s exports and employs about 35 million people, processing items such as towels, underwear and linen for major brands across the world.”The textile industry should be prioritised,” said Shahid Sattar, secretary general of the All Pakistan Textile Association.”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?”
After floods devastated domestic cotton crops last summer the sector is importing a significant amount of raw fabric.Factory owners appealed to the finance minister last month for “direct intervention” to unjam the backlog, which also affects 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% of textile mills have ceased operations, with the remainder working at a lower than 40% capacity. Tauqeer Ul Haq, head of the Pakistan Pharmaceutical Manufacturers Association said that 40 pharmaceutical factories were at risk of closing due to a shortage of key ingredients.
Pakistani economist Kaiser Bengali said the supply-chain crisis was “feeding inflation and also hitting the government´s revenues”. It is also increasing unemployment and fuelling poverty. A large number of Pakistani factory and construction workers are 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. While 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 businesses must “let the money come in from the IMF” before letters of credit would resume for imports, ending the logjam.
Inflation will rise if the bailout conditions are met, which could lead to higher petrol and energy prices. However, it should open the door for financial assistance from other friendly countries.
Peshawar, an old Silk Road town, was home to many factories, which produced everything from glass to rubber and chemicals. These were mostly used for the Afghan market.