KARACHI: The State Bank of Pakistan (SBP) has eased the trade regime by allowing advance payments or remittances for the import of goods, which could increase the outflow of dollars from the country.
The State Bank issued a circular on the subject and invited all banks to circulate this new development regarding advance payments without prior approval of the State Bank.
Authorized dealers are thereafter permitted to import, with due diligence, without prior approval of the State Bank, for irrevocable letters of credit or invoices, up to 100 per cent of the value of the letter of credit or invoice, as the case may be." The circular said.
A banker said the circular gives importers an opportunity to make advance remittance payments without opening letters of credit against their goods. This payment can be up to 100 percent, which means an importer can pay 20 or 30 percent more for the goods.
However, importers should buy dollars from banks, as per the current practice. The State Bank has relaxed imports, but importers find it difficult to open letters of credit as banks do not readily accept dollars.
Under the current practice, banks have to arrange dollars before opening an LC.
Prior to this practice, State Bank allowed importers to arrange dollars from any source and open LCs. But importers' rush for dollars from the open market pushed up demand as well as prices.
The value of the dollar rose and a black market emerged to supply greenbacks to importers. It encouraged currency dealers to charge up to Rs 340 in the open market and Rs 307 in the interbank market.
The situation attracted the attention of the government. After a crackdown on illegal currency trading, the central bank changed the rule and asked banks to arrange dollars before opening LCs.
This had an immediate impact and the dollar fell to Rs 279.50 on Wednesday. The revised guidelines will be effective immediately.
Forex market
Exchange companies sold $3 billion to banks during the current fiscal year, helping keep the market liquid.
During the last seven months, from July to January, exchange companies have sold around $3bn in the interbank market. After a long time we have managed to sell such a huge amount," Pakistan Exchange Companies Association General Secretary Mr. Zafar Pracha said.
He said that the inflow has increased since the crackdown on illegal currency trading began.
State Bank Governor Jameel Ahmed told the media last week that the State Bank is buying dollars from the market. Bankers believe the interbank market is a major source of dollars for the central bank as it helps it hold about $8 billion in reserves.
In the open market, the dollar remained at Rs 280.86. The difference between the interbank market and the open market is about Rs 1.36 — well within the range specified by the IMF.
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