In an attempt to restrict the outflow of dollars and conservation of depleting foreign exchange reserves, State Bank of Pakistan (SBP) imposed certain restrictions on importers such as, direction to commercial banks to seek approval for import transaction of over $100,000 from $500,000 and banks shall obtain 100 percent cash margin on the import of listed items.
Recently, SBP has decided to provide relief to importers by significantly reducing 100 percent cash margin requirements on deferred payments. Cash margin will be 25 percent for payments from 91 to 180 days & 0 percent for payments beyond 180 days instead of previous requirement of 100 percent.
To provide relief to importers, #SBP has significantly reduced cash margin requirements on deferred payments. Cash margin will be 25% for payments from 91 to 180 days & 0% for payments beyond 180 days instead of previous requirement of 100%. https://t.co/lUAS9NjdDm
— SBP (@StateBank_Pak) August 5, 2022
However, on already initiated import transactions, the instructions may only be applied if the amendments (in terms of payment) are made subsequent to the date of the issuance of instructions in accordance with the new slab.
Challenges especially for the industries which use to import their raw materials/ spare parts are numerous due to the prevailing situations.
Previously, SBP’s restrictions caused panic for auto assemblers in Pakistan as they experienced delay in the import of CKD (Completely Knocked-Down) kits. Import restrictions combined with rapid depreciation in dollar led to significant increase in car prices.
Toyota and Suzuki announced partial plant shutdowns in this month due to unavailability of raw material amid import restrictions and exchange rate volatility.
Moreover, the Toyota company has now been offering refunds to customers facing delays and mark-ups on their payments, with deliveries likely to be delayed by at least three months and prices to be revised as the country does not have dollars available.
Out of several economic challenges faced by the country, widening trade deficit was one of the major challenges. Import restrictions did bring positive results as the trade deficit of Pakistan is declined by 18 percent in July 2022, according to the Pakistan Bureau of Statistics (PBS). Reduction in import bill may have resulted in this decline as import bill of the country fell by 13 per cent to $4.86 billion in July 2022 as compared with $5.57 billion in the same month of the last year.
Read more: Pakistan’s trade deficit declined by 18 percent in July 2022
Since the challenges are multifaceted triggered by the political instability, cooling the heated economy is not only a short run challenge. Pakistan is a consumption driven economy where imports are generally preferred over domestically produced goods due to the problem of quality. Moreover, the country is mainly involved in assembling practices rather than manufacturing which makes it difficult to impose stringent import restrictions for long. So, it is not easy to bring significant improvements in the trade deficit overnight. However, government and its institutions including SBP are taking measures to fix the economy.