THE State Bank of Pakistan has allowed banks to keep unrealised export proceeds in a special account for three days and purchase the same automatically at the market rates if exporters don’t sell on their own.

Apparently, the purpose is to push exporters to realise export proceeds on time. When exporters don’t convert export earnings into rupees on time it results in temporary shortage of forex flows in the interbank market and consequently weakens the rupee’s parity with foreign currencies.

“On the face of it, the SBP initiative isn’t due to any anticipation of forex crunch in the market,” says a former central banker. “When seen in a broader context, the SBP intends to discipline forex market, blocking possibilities of speculative movements of the forex rates.”

“There is a tendency on the part of exporters to delay export proceeds and a dollar buying spree by importers against fake documents,” says treasurer of a large local bank

From stricter rules of business enforced for forex companies to more comprehensive forex reporting requirements for banks to better regulations for forward sales of dollars to importers to disciplining export dollar transactions, all measures are meant to push forex markets to behave, he says.

Such measures have assumed special significance because keeping forex market adequately liquid is becoming difficult in the wake of a sharp decline in export earnings.

There is a tendency on the part of exporters to delay export proceeds and a dollar buying spree by importers against fake documents,” says treasurer of a large local bank. The scam involving gold imports against fake exports and ‘investment’ in the real estates of Dubai are just two examples.

“That’s why the SBP first made it difficult for banks and importers to transact what it saw as panicky forward forex deals and now it wants exporters and their banks to expedite realisation of export proceeds.”

Exporters traditionally delay realisation of export proceeds for exchange rate gains at times when they think that the rupee may lose some worth in near future. “But volumes of outstanding proceeds on this account has always been very small,” says a former vice president of the FederatiAs a matter of fact, Indian regime does not ask for production bonuses, has no cap on cost oil and companies bid on Government’s share of profit oil, had a tax holiday for earlier projects; an offer that trumps our fiscal regime. On the other hand, Bangladesh with negligible oil production and gas production half that of Pakistan’s, offers a production sharing contract where both cost oil and profit oil ratios are biddable. on of Pakistan Chambers of Commerce and Industry.

Delays in realisation of export proceeds occur also due to other reasons including prolonged holidays, incomplete or dubious documentation and delayed communication between the banks maintaining accounts of exporters and their correspondent banks overseas, he says.

SBP officials also recall that even at times when delaying export proceed realisation was quite common, back in 2000s, annual volumes of outstanding export bills never exceeded $200m-250m.

For past few months, the SBP has been revamping the entire forex regulatory regime to check money laundering and to contain undue exchange rate volatility. “Banks have recently got new formats for reporting the statements of overdue export proceeds and special software has been installed on SBP instructions at head offices and treasuries of banks and at branches dealing with foreign exchange,” says an executive of National Bank of Pakistan.

Keeping overdue export proceeds in a special account for up to three days and then purchasing the same on their own (in case exporters don’t sell the same) would not affect forex exposure limits of banks, according to the rules notified by the SBP. Senior bankers say this has been done to ensure that retention of such export proceeds does not render banks ‘long’ in forex buying at a given day. But, according to them, once the proceeds put in the special account are purchased by the banks the amount of foreign exchange thus purchased would be calculated as part of their exposure limits.

Banks have been allowed to purchase the export proceeds kept in the special account at the weighted average buying rate of the exchange rates quoted for customers for that day. This effectively means that the exporters whose export proceeds have thus been bought would not be able to negotiate exchange rate for conversion of export proceeds into rupees.

“Although, not too penalising in normal circumstances this would discourage exporters from withholding export proceeds unnecessarily,” says a local bank forex dealer.

Published in Dawn, Business & Finance weekly, April 4th, 2016