KARACHI - Karachi Chamber of Commerce and Industry (KCCI) President Shamim Ahmed Firpo has slammed the State Bank of Pakistan’s decision to impose a 100 percent cash margin on import of a number of consumer items.

He said that this imprudent move was likely to promote smuggling, inflate prices of many items and intensify problems of traders as well as the general public.

The KCCI president said in a statement that the requirement of 100 percent cash margin had been prescribed on items such as motor vehicles, mobile phones, jewellery, cosmetics, personal care and electrical and home appliances. “Except a few items on which 100 percent cash margin has been imposed, most of the items are used in almost every single household across Pakistan. Therefore, the State Bank’s claim that it will have nominal impact on the general public is completely baseless,” he said.

He said that importers and suppliers were forecasting a 60 percent drop in import of certain items and this would obviously create a severe shortage, trigger inflation and have a deep impact on the public. Firpo pointed out that 100 percent cash margin requirement on import of mobile phones would adversely affect all mobile phone importers who had invested heavily in this industry and contributed billions of rupees to the national exchequer during the past several years.

He said that with the same level of investment, the business would shrink by 60 percent. If the same rate of return on equity is maintained, the price will inflate significantly. Those working with banks on different financing arrangements such as Finance Against Imported Merchandise (FIM), Murabaha and Running Finance will not be able to do business at the same scale after this regulation, he said. This regulation will give ample opportunities to parallel economy to flourish and reduce government’s revenue, as no rational businessman would double the investment in the mobile phone industry, which has a history of fluctuating duty structure and inconsistent import policy, he added.

He was of the view that some major importers, who had substantial liquidity available with them, would stay afloat whereas majority of the small importers whose businesses were operating purely on the basis of credit would be completely wiped out.

The KCCI president pointed out that the State Bank of Pakistan had vowed to bridge an alarmingly high trade deficit through this move, but the government should have focused on an effective strategy to deal with Pakistan’s depleting exports instead of taking such a discouraging and anti-business step.

It seems the government has totally failed to improve the descending exports hence they have no option but to block the imports in order to deal with the widening trade deficit and save the foreign reserves to clear the huge national debt, Firpo said. Instead of taking steps to reduce the cost of doing business, which is the only way to improve Pakistan’s competitiveness and enhance export share in the foreign markets around the world, the government has decided to penalise the importers, but this was not the solution and must be condemned, he said.

He urged the federal finance minister and governor of the State Bank to review the situation and immediately withdraw the decision to impose 100 percent cash margin on import of numerous consumer items.