SBP withdraws cash margin requirement on imports

KARACHI: State Bank of Pakistan has removed the existing cash margin requirement on imports, an action interpreted by analysts as another step towards resuming the stalled International Monetary Fund loan programme.

“It has been decided to withdraw existing cash margin requirement (CMR) on import of items with effect from March 31, 2023,” the SBP said in a circular on Friday. “This seems to be another action to revive the IMF programme. IMF has not been supportive of cash margins to restrict imports. This would lower the liquidity requirement of importers, which had to deposit 100 percent of the amount of import,” said Fahad Rauf, head of research at Ismail Iqbal Securities.

Samiullah Tariq, head of research at Pak-Kuwait Investment Company, added that in addition to complying with the IMF requirements, the removal of CMR will support the ease of doing business in Pakistan.

There are reported backlogs of unpaid imports at Pakistan’s ports. The government restricted opening letters of credit to curb imports amid the dollar crunch in the country. The inability to obtain imported raw materials due to container non-clearance has forced the closure of hundreds of industrial facilities across the country. Businesses suffered enormous losses as a result, which led to several layoffs.

Mohammed Sohail, CEO of Topline Securities, said that the decision was “probably IMF demand”. On the manageability of imports in the current circumstances, he added, “Also imports are allowed on selected basis. So can be managed.”

The current account deficit narrowed 86 percent to $74 million in February, the smallest since March 2021. It dropped by 68 percent month-on-month in February. The deficit shrank 68 percent to $3.9 billion in the eight months of the current fiscal year.

Administrative controls and depreciation of the rupee reduced imports. Imports fell 22 percent to $3.931 billion in February from $5.039 billion a month ago. The country’s import bill declined 21 percent to $37.388 billion in July-February FY2023.

Pakistan is facing a delay in a bailout deal with the IMF. Without an IMF agreement, sovereign default is imminent. Also, the ongoing political and economic unrest could make it difficult to get funds from the IMF. It is essential for Pakistan to obtain a staff-level agreement with the IMF in order to secure a $1.2 billion tranche and unlock further inflows from other international creditors. The final barrier to reaching an IMF agreement is an assurance from “friendly countries” to finance a balance of payment gap.