Exchange firms offer to open credit letters for imports

KARACHI: The exchange firms on Saturday offered the government their willingness to pay for the opening of letters of credit (LCs) for imports as banks have been hesitant to do so due to the shortage of dollars.

As a result of the banks’ reluctance and outright refusal to accept the letters of credit, numerous sectors and industries are facing issues, and are negatively impacted, M Zafar Paracha, the general secretary of Exchange Companies Association of Pakistan said in a statement.

Taking stock of the situation, the exchange companies decided to share some of the load and have offered to assist the government by providing the needed US dollars, just as these firms do for credit card settlement, education purposes and medical treatments abroad, as well as Hajj, Umrah, religious pilgrimages, and other travels, he added.

“If the government allows, the exchange companies are ready to make payment up to USD 50,000/- for the LCs in pending and also to open new LCs to facilitate the concerns for the sake of nation and country,” Paracha said.

This would ensure the availability of necessities and lessen the load on the government, he added.

“We may finance imports (letter of credit /LCs) worth totaling to $200-250 million in the next one-month, Paracha said. “We will offer the financing at Rs255/dollar...compared to Rs227/dollar at inter-bank market.”

The rate has spiked to Rs270 per dollar in the country’s black market, he said.

The financing of L/C through open market would help divert the much needed foreign exchange from the illegal hawala-hundi markets to the legal open market, Paracha said.

The exchange firms have already given this suggestion to Finance Minister Ishaq Dar, he said. The currency dealers' recommendations come as the country is struggling with dwindling foreign exchange reserves. The central bank’s foreign reserves decreased by $245 million to $5.6 billion as of December 30, the State Bank of Pakistan data showed.

The gap between the interbank and kerb market has risen considerably. Commercial banks have been refusing the opening of the letters of credit for various import consignments, whereas exchange companies too have not been releasing dollars to even their regular non-trade customers.

Importers have been facing the brunt of the dollar shortage, with their credit letters either denied or consignments sitting at ports for weeks because of a lack of clearance from banks. This also inflicts additional demurrage charges on importers, further exacerbating their liquidity issues.

On Friday, January 6, edible oil importers asked for the central bank to intervene in the matter, as despite exclusion of the sector from the condition of prior permission from the central bank, commercial banks were refusing to issue credit letters on interbank rate.