‘Impose special levy on imported items’

The Institute of Fiscal Studies (IFS), an economic think-tank, says a special levy should be imposed on several items imported into the country to stop unbridled importation.

According to the Institute, such a measure would help reduce the numerous challenges facing local manufacturers.

The IFS, which made the proposal in a latest report, said both tax policy and policy reforms in the business environment should be used to create an incentive structure that would boost domestic manufacturing and production for export.

“In 2010, when the duty on rice importation was reinstated, the importation of rice was drastically reduced which led the production of local rice to shoot up significantly. To support the revival of the manufacturing industry, the country needs policies and programmes that reward domestic production and penalize imports that can easily and efficiently be produced locally.

Targeted support must be given to industries with a huge export potential such as those in agro-processing, clothing and pharmaceuticals because the success of such initiatives would bolster the performance of the external sector over the medium to long-term and reduce vulnerabilities arising from a perilous dependence on commodity exports, it said.

According to IFS, economic incentives favour importation rather than domestic production of goods, adding that the country’s exports have also been hampered by increased competition in the domestic market, high production and distribution costs arising from high interest rates, obsolete equipment, inefficient infrastructural services, as well as low productivity.

“As a result, practically everything is imported as the manufacturing sector has almost ground to a halt. The trade deficit has been growing and imports saturate the domestic markets and shops. The country continues to export its natural resources in raw form.”

Some of these policies, it noted, were outside the remit of the IMF, yet these must be pursued since they were at the core of the much-needed long-term sustainable solutions to the country’s problems.

It revealed that the Government/IMF bailout plan may help ease the fiscal and external pressures the country was currently experiencing, noting that adhering to the programme with its ambitious front-loaded fiscal consolidation, the Central Bank’s tight monetary policy and zero financing of government will pose serious implementation challenges.

“A number of the programme targets and benchmarks, including the rate of fiscal deficit reduction and GDP growth appear too optimistic given the substantial short and medium-term downside risks the economy faces.”

It said that the likely pressure that the 2016 elections may put on government spending may also work undermine the fiscal consolidation effort.

“Even with discipline, political and social determination to implement the measures, the fiscal deficit targets and GDP growth projections set under the programme will be difficult to achieve within such a short period of three years.”