KARACHI: The central bank on Thursday allowed banks to effect advance payments up to 50 percent per invoice on behalf of manufacturing concerns for imports of plant, machinery, spare parts and raw material.
“Authorised dealers (banks) are allowed to effect import advance payment against irrevocable letter of credit, up to 50 percent of the value of letter of credit, for import of plant, machinery, spare parts and raw material etc. on behalf of manufacturing concerns for their own use only,” the State Bank of Pakistan (SBP) said in a statement.
Earlier in July 2018, SBP withdrew the advance payment facility allowed to importers in light of the pressures in the foreign exchange market and deteriorating balance of payments situation.
At that time, foreign exchange reserves plunged to a level sufficient to cover only less than two months of import bills. Subsequently, some of the restrictions were relaxed to facilitate imports in critical areas related to medicines, education and defence while most of the restrictions remained in place.
After the implementation of a market-based exchange rate system in May 2019, pressures in the foreign exchange market have eased and the balance of payments has witnessed significant improvement as reflected in the improving current account balance, rising net foreign exchange reserves, and other indicators.
The SBP’s foreign exchange reserves rose to nearly eight-month high, while monthly current account turned into surplus on International Monetary Fund-backed reforms and subsequent foreign inflows from Asian Development Bank and other lenders.
“This improvement in the foreign exchange market after the implementation of the exchange rate reforms has allowed SBP to begin relaxing the restrictions that had been imposed earlier,” the SBP said.
In November 2019, SBP allowed advance payment up to $10,000 per invoice for import of raw materials and spare parts to manufacturing concerns for their own use only. At that time, SBP also eased restrictions on acquisition of services from abroad, such as consultancies. Using the 50 percent payment facility, manufacturing concerns would be able to increase imports essential to boost production and exports from the country.
“The measure taken will support the manufacturing sector by easing restrictions on import of plant, machinery, spare parts and raw material, and related items,” the SBP said. “Today’s measure is in continuation of SBP’s efforts to reverse the earlier restrictions and facilitate and support ease of doing business in light of the improved foreign exchange and economic outlook.”