KARACHI, July 11: After three years the State Bank has decided to partially off-load the burden of import bills of petroleum products and passed it on to the private sector, which could cause an impact of $2.3 billion for the current fiscal.

This is a major move and has been possible after huge inflows of foreign exchange through investments and an unexpected rise in remittances by the overseas Pakistani workers. “All purchases of foreign currency related to the import of furnace oil (HS code 2710.1941) will be made by the banks from the inter-bank market,” said the SBP on Wednesday.

It further said that all POL related foreign currency purchases, which are made on the basis of specific Form ‘M’ approvals issued by the Exchange Policy Department, will be made by the banks from the inter-bank market.

The State Bank said that most of the burden of import bills of petroleum products would still be borne by it.

“I believe that 20 to 30 per cent import bills will be paid by the private sector after this decision,” chief spokesman SBP Syed Wasimuddin told Dawn. He said that the country paid $7.7 billion as petroleum import bill for the fiscal ended June 30, 2007.

Industry sources said that the SBP had planned to gradually pass on the load of import bill of all petroleum products to the private sector but the timeframe for this strategy was yet to be decided.

The SBP said that the decision was taken on the basis of the growth in foreign exchange flows in the inter-bank market and the increased foreign exchange exposure limits. The country’s forex reserves have reached $15 billion. The reserves of SBP were $12.754 billion while the reserves held by banks were $2.427 billion.

The SBP will continue to provide foreign exchange to banks for the import of all POL products other than those specified above. The decision will be effective from July 13, 2007.The decision of payment of import bills of petroleum products was taken in November 2004 and the decision saved the exchange rate and timely curbed the speculation in the exchange rate of rupee against dollar.

The huge oil bills in the private sector, particularly in the absence of sufficient foreign currency (US dollar), had destabilised the rupee but the shifting of oil bills load towards SBP changed the situation.

However, the current decision of partially off-loading of oil bills’ burden to the private sector would be roughly translated into a sum of $2.3 billion. The private sector would have to arrange additional $2.3 billion for the payment of oil bills, which could again put some pressure on rupee.

Bankers and market experts said that this partial oil payment (roughly $2.3 billion) would certainly impact upon the rupee devaluation. Currency experts believe that the rupee is already over-protected and it should lose Rs1.5 to Rs2 against the US dollar.

“Though the influx of foreign exchange is huge but the trade deficit is also huge reaching up to $13 billion, which means the outflow of foreign exchange would neutralise the impact of massive inflows,” said Asif Ahmed, a currency dealer adding that the impact of $2.3 billion would create demand for the greenback and would ultimately appreciate the currency against the rupee.