ISLAMABAD, Oct 17: Prime Minister Syed Yousuf Raza Gilani has constituted a high-powered committee to investigate the failure of the policy-makers to curtail the flow of imports bill, which if not addressed may cause a sever balance of payments crisis.

What was expected by most economists was that the tightening of monetary policy, imposition of regulatory duty on imports in August last, coupled with a 22 per cent depreciation of rupee, would slow down the flow of commodities into the country.

But surprisingly the imports surged by 39.2 per cent in September 2008, reaching $3.8 billion as against $2.7 billion last year, proving these steps rather counterproductive.

“This trend baffled many at the helms of affairs. This phenomenon is against the very basic theory of economics,” a senior official in the finance ministry told Dawn on Friday.

The official, requesting not to be named, said the committee headed by special assistant to prime minister on finance and revenue, has been asked to investigate the issue and recommend measures to reduce the import bill to avert any balance of payments crisis.

It is feared that some other factors are creating hindrance in government efforts to reign in unbridled flow of imports, the official added.

In the last ECC meeting, headed by Prime Minister Syed Yousuf Raza Gilani, participants expressed fears about un-bridled capital flight under the garb of over-invoicing by business tycoons.

The premier was informed that if these measures did not curtail flow of imports, it simply suggests that over-invoicing of imports is taking place and through this the flight of capital is taking place.

Former chief economist Dr Pervez Tahir suggested that except for food items, the government should impose direct control for at least six months on certain goods because the policy measures already taken were not making a difference required for massive trade and current account gap that the country required.

He said that some imports can also be subject to complete ban for a specific period. The economy required some breathing space immediately, he said and added the control should not be a normally imposed one but we have a grave emergency.

“We should not even rule out capital controls, like the one imposed by Malaysia during the Asian currency crisis,” he suggested. The most disturbing part of Pakistan’s import bill is the oil imports, which reached over $11 billion last year due to rising oil price in international market. But this year, oil price averaged $96 per barrel in September 2008 as against $134 in July 2008, while it was $113 in August 2008.

This trend should also help curtail the import bill, while keeping the down trend in oil import price, which now has come down to $65 a barrel.

Weakening of Indian rupee notwithstanding, a sharper fall in crude prices reduced the monthly oil import bill of Indian refiners by nearly 30 per cent in September last.

Other measures taken for controlling imports include monetary policy tightening to curb aggregate demand. Bank credit to private sector also recorded a negligible growth.

Renowned economist Dr Qaiser Bengali, however, said it may be one reason for capital flight, but there was no restriction on the free flow of capitals from the country, leaving Pakistan as the only country in the region to have this system.

He said that 80 per cent of our banking, telecom and the entire oil and gas sector were being handed to foreigners. These foreign firms would earn their profits in Pakistani currency, but remit it abroad in dollars which would create a frightening trade deficit, he added.

A senior tax official told this scribe that the imposition of 10 to 15 per cent regulatory duty on import of 380 non-oil and non-essential items could not curtail the flow of imports until the government takes administrative measures to restrict clearance of goods through Pakistan Customs Computerised System (PACCS).

The flaws in the software of customs computerised system had allowed clearance of 250 containers a few months back, but the customs department has, so far, no information about the whereabouts of these containers, involving billions of rupees revenue. The source said that the government has constituted a committee to investigate the issue and also decided to send a team of tax officials to China to ascertain the value of imported goods in these containers.

Interestingly, the matter was reported by an informer and not detected by the PACCS, which showed that the computerised system was helping unscrupulous importers not only to evade taxes but also helped in over-invoicing leading to flight of capital.