KARACHI: Banks have been asked to allow about 25 per cent higher imports but they will have to arrange dollars before opening letters of credit (LCs), sources in the banking industry told Dawn on Thursday.

A shift has taken place regarding the arrangement of dollars. Bankers said they have been asked by the State Bank of Pakistan (SBP) to arrange dollars before opening LCs which will limit imports due to the non-availability of dollars.

Earlier, importers were given the responsibility to arrange dollars for opening LCs to import raw materials which relatively eased the situation for industries but at the same time, it strengthened the black marketing of dollars.

Importers started purchasing greenbacks at higher prices, up to Rs20-25 per dollar, from the grey market which widened the rate gap between the interbank and open markets resultantly remittances started declining while export proceeds were sold in the grey market or were held back for higher rates.

Despite a 31pc decline year-on-year, the imports totalled $55.29 billion with a trade deficit of $27.55bn in FY23.

Sources in the financial sector said that banks would be unable to improve their dollar reserves which means the imports would remain restricted. The central bank’s reserves may improve once the IMF board approves the $3bn Stand-By Arrangement mid of this month.

The banking sources said the SBP has relaxed import restrictions by abolishing criteria for essential and non-essential imports. It will help particularly the industries that largely depend on imported raw materials like the pharmaceutical industry.

SBP reserves rise

The foreign exchange reserves of the SBP rose in the week ending on June 30. In the preceding week, its reserves recorded an increase of half a billion dollars.

“During the week ended on June 30, the SBP reserves increased by $393m to $4.462bn mainly due to receipt of official GoP inflows,” announced the central bank.

The total liquid foreign reserves held by the country stood at $9.745bn including $5.282bn of the commercial banks.

Meanwhile, the US dollar slightly depreciated by 37 paise against the rupee to close at Rs277.04 compared to Rs277.41 the previous day.

In the open market, the greenback lost Re1 to settle at Rs280.

Published in Dawn, July 7th, 2023