Sustaining Trade and the Balance of Payments Slab Present Tariff Proposed Tariff The level of imports reached an (%)(%) all-time peak of 22 percent of the 1 3 5 GDP in 2021-22, due particularly to 2 11 15 the explosion in the international commodity prices after the start of 3 16 20 the Russia-Ukraine war. This has now 4 20 30 led to a global recession and prices are coming down significantly. This is an opportune time for raising the level of import tariffs without impacting significantly on the domestic price level. The recommended move is enclosed. The maximum tariff will rise from 20 percent to 30 percent. However, the import tariffs on basic food items and medicines should remain unchanged at present levels. The average level of effective protection to domestic industry will go up from 33 percent to 45 percent. This will promote‘MADE IN PAKISTAN’ products. The Customs department should develop a system of determining from different sources the latest international prices, like the UNCOMTRADE database, and comparing them with the actual prices in import invoices. There is considerable evidence of significant under­invoicing by importers. Also, a 1 percent handling charge should be levied on the c.i.f. value of an import consignment, as is the case in India currently. 15.4 Maintaining an Overvalued Exchange Rate The Real Effective Exchange Rate(REER) compares Pakistan’s rupee against the weighted average of the currencies of its major trading partners. It is an indicator of the international competitiveness of a nation in comparison with its trading partners. A rising or high REER indicates that Pakistan is losing its competitive edge, with relatively expensive exports and relatively cheap REER imports. July 2021 99.6 September 2021 96.7 The SBP computes the REER of Pakistan on a monthly December 2021 96.8 basis. It is in the form of an index with the base year of 2010= 100. The latest REER is as follows: March 2022 96.7 June 2022 94.0 Therefore, the Pakistani rupee has been depreciating in relation to other currencies since July 2021. However, since end-July the rupee has appreciated by 10 percent and the REER stands currently at close to 100. This has happened recently because of the SBP move away from a market-determined exchange rate July 2022 August 2022 September 2022 October 2022 November 2022 93.2 94.3 90.71 100.19 98.94 149