Cnmmittee on Balance-of-Payments Restrictions Original: English CONSULTATION UNDER ARTICLE XVIII:12(b) WITH PAKISTAN

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1 GENERAL AGREEMENT ON TARIFFS AND TRADE RESTRICTED Bop/ April 1980 u^a auwitt» Cnmmittee on BalanceofPayments Restrictions Original: English 1980 CONSULTATION UNDER ARTICLE XVIII:12(b) WITH PAKISTAN Statement Submitted "by Pakistan under the Simplified Procedures for Consultation! BalanceofPayments Position and Prospects Pakistan's balance of payments which had recorded a surplus' of $339 million in , underwent a severe pressure in showing an overall deficit of $ million. This transformation of payments position was mainly due to heavy import bill of wheat, fertilizers, POL and machinery and capital goods. This was supplemented by the everincreasing unit value of imported goods. Another factor for this adverse payments position was the sharp rise in the debt servicing liability after a period of four years debt relief ending in June The upsurge in payments would have led to even sharper deterioration in payments position but for the impressive export performance during However, increase in payments other than that of receipts led to almost doubling of current account deficit to $ million which was largely financed by a net inflow of $779 million under capital transactions in The gold and foreign exchange reserves declined by $ million to $ million during as compared to an increase of $579.8 millionin The current account deficit which was considerably reduced in widened by $U95.2 million to $983.8 million during The deterioration resulted mainly due to increased deficit on merchandise account which expanded by U7.8 per cent to $2,1715 million. The services account also continued its gradual deterioration during due entirely to enlarged payments which rose by 2U.6 per cent to $9^7.8 million as compared with $760.k million in Net receipts under unrequited transfers which rose substantially in increased by 21.U per cent to $1,623.9 million during The balanceofpayments position during and is given in Annex I. The various elements affecting balance of payments are reviewed below: (i) Exports Exports (f.o.b.) during stood at $1,709.6 million showing an increase of 30.h per cent over last year. Commoditywise export earnings during registered increase for almost all major items of exports except raw cotton and petroleum and petroleum products. Export of rice and cotton yarn i L/3772/Rev.l

2 Page 2 stood at $3^1.4 million and $197.6 million shoving an increase of Uo.3 per cent and 8U.7 per cent respectively during Export of leather almost doubled from $64.3 million to $126.0 million. Export of carpets and rugs and cotton fabrics stood at $178.3 million and $215.7 million shoving an increase of 50.7 per cent and 22.6 per cent respectively over Other items shoving prominent increase in export receipts are fish and fish preparations ( $12.2 million), textile clothing and accessories ( $9.8 million), machinery transport equipment ( $9.** million), towels (t $««3 million), and guar and guar products ( $7.0 million), Annex II gives the position of major items of export during to Hi) Imports Imports (f.o.b.) during stood at $3,675.5 million shoving an increase of 30.8 per cent over last year as compared with an increase of 20.9 per cent in As pointed out earlier, this upsurge in import hill vas necessitated to import of wheat due to shortfall in home production} import of machinery and capital goods; edible oils; fertilizers; and POL etc. Imports of wheat and fertilizer increased more than twice to $35^.1 million and $283.6 million respectively in Imports of edible oil and transport equipment increased by 71.2 per cent and 51.3 per cent in » over preceding year. Other items depicting prominent increase in import hill are iron and steel; synthetic and artificial silk yarn; POL; machinery; synthetic fibre; and paper and paper products etc. The imports hy categories, unit value of imports and major items of imports are set out in Annex III and IV. (iii) Invisibles Invisible receipts increased by 66.8 per cent and 22 per cent in and respectively and reached a level of $2,136.8 million in the later year. On the other hand invisible payments increased from $77^*9 million in to $951.2 million in showing a rise of 22.8 > per cent. The improvements in invisible earnings vas mainly due to unrequited transfers (home remittances etc.) which constituted 76.2 per cent of total earnings. (iv) Debt Servicing Net interest paid on foreign debts excluding debt relief stood at $305 million and $U96 million in and showing an increase of 1*3 per cent over preceding year. Outstanding debts during these years were $7,189 million and $7,792 million respectively, (Annex V).

3 Page 3 (v) Capital Transactions The net inflov under capital transactions vhich increased substantially to $827.7 million in declined to $779.0 million during Longterm loans received by the Local and Central Governnents increased by 7.6 per cent from $660.1 million in to $710.6 million during while their repayments went up by U8.7 per cent from $121.8 million to $181.1 million. System and Methods of Restrictions The liberal import trend initiated in May 1972 vas further strengthened and accelerated in the succeeding policies. The free list vas enlarged to include 356 items in *, 382 items in 197^75, 389 items in and to U07 items in The current Policy contains as many as U36 items on the Free List as against only 21 items on the Tied List. The items tied to the public sector agencies such as Trading Corporation of Pakistan, Edible Oil Corporation, and National Film Development Corporation etc., have been included in the Free List. This has made possible bulk imports of various agencies on cash from vorld vide sources resulting in economies of scale and availability of essential goods at competitive rates. The facility of free import of machinery and mill work vas further liberalized by allowing import of machinery of value of PRs 0.5 million against cash, PRs 1 million against credit and PRs 2 million against barters in *. The monetary ceiling for Free List import of machinery against cash vas further enhanced to PRs 0.75 million in the Import Policy for Since machinery vorth PRs 1.5 million is importable against cash and against loans /credits and barters the monetary ceiling is PRs 2 million. In order to remove further difficulties faced by our importers, the timelimit for opening letters of credit against credits or barters vas extended in 197^75 from 30 to 60 days. In the same year requests for revalidation of cash licences vere allowed to be made vithin 15 days of the exipiry of letters of credit instead of 7 days allowed in 19737U. The Import Policy of 1979 provided for it opening of the letter of credit vithin 60 days of the registration of the licence vith the State Bank of Pakistan. The liberal trend of the Import Policy over the last 8 years vould be evident from the value of the Import Licences issued in various years and actual import as indicated below:

4 Page k YEAR * 197W VALUE LICENSED 99U 733 1,333 1,U02 l t k6h 2,011 2,089 3,387 US$ MILLION ACTUAL IMPORT 62k 797 1,371 2,088 2,067 2,32U 2,810 3,676 Import of Capital goods and raw materials for the domestic production of consumer goods (including crude POL) have been gradually increasing in the total importmix. In , it represented 60 per cent of total imports and later rising to 73 per cent of total imports in This reflects that structural transformation of the system, and the broad shift in Pakistan's development strategy. Import expenditure on some commodities unavailable particularly of those strategic items where domestic production/supplies are inadequate to meet the maintenance requirements. It includes POL, edible oil,wheat, tea, chemical fertilizers, metals nonferrous, iron, steel and machinery. In order to encourage exports, the Government also allows import of restricted and banned items in fixed percentages to the exporters. The number of such items and the percentages are fixed in consultation with the Export Promotion Bureau. A list of such items is attached. (Annex VI). Although the balanceofpayments position remains under severe pressure, the Government has continued to operate a liberal import regime for the private sector and to import essential items like wheat, edible oil and fertilizers to meet our full requirements. The liberal import policy has been maintained because any deliberalization would have led to further increase in domestic prices.

5 ANNEX I BOP/205 Page 5 BALANCE OF PAYMENTS ($ Mill Lon) Item Merchandise Account (net) 1285o Exports (f.o.b.) Imports (f.o.b.) Nonmonetary Gold Service Transactions (net) Receipts Payments Unrequited Transfers (net) Private (net) Govt. (net) «Current Account Balance Allocation of SDRs «Capital Transactions (net) Overall Surplus () Deficit () _ Source: State Bank of Pakistan

6 Page 6 Annex II EXPORT OF MAJOR ITEMS PAKISTAN (US $ MILLION) S No. Items Rice Cotton Yarn Cotton Fabrics Leather , Carpets & Rugs Fish & Fish Preparations Tobacco manufactured & unmanufactured Guar and guar protein Petroleum & petroleum products Towels Others ti TOTAL:

7 Page 7 ANNEX III IMPORT BY ECONOMIC CATEGORY PAKISTAN ( US $ Million) S No< Items lo Consumer goods 368, o Raw material for consumer goods , Raw material for capital goods Capital goods TOTAL: UNIT VALUE OF MAJOR IMPORTS S.No< Items ( U.S $ per ton ) POL i) Crude ii) Products Wheat Fertilizer Edible oil Tea o o «oooooooaooo»

8 Page 8 ANNEX IV IMPORT OF MAJOR ITEMS PAKISTAN S.No< Items (US $ 'Million») WheatUnmilled Chemical fertilizer Petroleum crude and partly refined Petroleum products Edible oil Tea Chemical dyes Textile yarn and thread Iron and Steel items Metals nonferrous Other items TOTAL:

9 Page 9 DEBT SERVICING ANNEX V PERCENTAGE DEBT DEBT SERVICING DEBT NET INCREASE() YEAR OUTSTANDING P I T RELIEF PAYMENT DECREASE ()

10 Page 10 IMPORT OF RAW MATERIALS PERMISSIBLE FOR PRODUCTION REQUIREMENTS FOR EXPORTS ANNEX VI S.NOo Commodity S. No. Commodity 1. Achar, Morrabbah, Ketchup, Jams, Jellies and Marmalade. 2. Asbestos products. 3. Bifurcated rivets & light duty hand shoe tacks. 4. Biscuits and confectionery. 5. Boat building. 6. Brass auto bugles/horns. 7. Brass water fittings. 8. Brushes. 9. Canned or bottled fruits and vegetables. 10. Canvas rubber belting. 11. Carpets (machines made). 12. Centrifugal pumps, deep well turbine pumps. 13. Cereal manufactures. 14. Cigarettes. 15. Clocks complete and clock springs. 16. Coated and metalised paper films and metalised yarn. 17. Conveyor rubber belting made of synthetic yarn. 18. Cosmetics excluding Henna. 19. Cutlery. 20. Cycles and cycle parts. 21. Diesel engines. 22. Domestic sewing machines. 23. Electric ceiling fans. 24. Electric cables and wires. 25. Electric meters, meters and generators, switch gears and transformers. 26. Fabrics; art silk, mixed containing yarn and thread of manmade fibre. 27. Fish & prawns: canned, fish spiced, frozen and denydrated. 28. Footwear: with leather sole and crepe or rubber sole, canvas, plastic with leather plastic or rubber sole, rubber. 29. Fountain pens. 30. Fruits juices and squashes. 31. Gas mantles. 32. Grinding wheels. 33. Guar gum. 34. Handicrafts: embroidered bags and caps made of velvet, artificial leather; badges and crests. 35. Knitwear (Hosiery) made of cotton or synthetic yarn. 36. Leather gloves. 37. Lace, brais and tape (synthetic). 38. Leather garments. 39. Leather boot/shoe uppers. 40. Leather goods, other than footwear, leather gloves and leather garments. 41. Macaroni spaghetti and vermicelli. 42. Machine tools. 43«Machine screws. * 44. Marble and onyx products (excluding finished slabs of any size whether hand out or other than hand cutt). 45» Mirrors. 46. Musical instruments. 47. Nylon rubber lined fire fighting hose pipe. 48. Optical frames with or without decorative rolled gold eye rims. 49. Pencils, including locally manufactured lead for pencils. 50. Pharmaceuticals.

11 Page 11 Razor blades» Commodity Readymade garments, woven (other than bows and ties) embroidered of: cotton fabrics, woolen fabrics/and synthetic fabrics; nonembroidered: of cotton fabrics (i) garments made from local fabrics, (ii) trousers made from imported denim cloth/corduroy velveteen; of synthetic fabrics:(i) garments made from imported mixed fabrics,(ii) garments made from imported 100% synthetic fabrics,(iii) garments made from local synthetic fabrics; foundation garments (brassiers) Rubber goods including tyres and tubes, but excluding footwear and rubber belting. '' Shoe laceso Sports goods. SoNoo Commodity 70. Unani medicines processed/manufactured (including Rooh Afza Syrup but excluding medicinal herbs). 71. Utencils, copper/brass. 72. Utencils, aluminium anodised or unanodised. 73. Vacuum flask. 74. Waxol PA(Textile Auxiliary Chemicals). 75o Wedding, greeting and other printed cards. 76. Wood screw (Iron, steel and Brass). 77. Wooden furniture. 78. Wooden doors. 79. Wooden handles. Steel dump barges 0 Steel nuts, bolts and rivets» Steel furniture including safes and strong room doors. Shot gun butts. Surgical instruments. Syrups Tanning: tanned leather and crest and finished leather. Tents & Canvas (waterproofed), Textile industry shuttles. Thread, cotton. Ties, bows. Toys. Transistors, radio and electronic components. Typewriters.

GENERAL AGREEMENT ON TARIFFS AND TRADE

GENERAL AGREEMENT ON TARIFFS AND TRADE RESTRI CTED BOP/224 3 May 1982 Limited Distribution Committee on Balance-of-Payments Restrictions Original: English 1982 CONSULTATION UNDER ARTICLE XVIII:12(b) WITH