Pakistan, Iran sign accord to allow bilateral banking transactions

KARACHI: Pakistan on Friday signed a landmark agreement with Iran to formally execute bilateral trade transactions through banking channels after one-year of lifting of western sanctions on its neighbouring country.

The central banks of Pakistan and Iran signed the agreement of banking and payment arrangement (BPA), said a statement issued by the State Bank of Pakistan (SBP).

Riaz Riazuddin, deputy governor of SBP and Ghulamali Kamyab, vice governor of Bank Markazi Jomhouri Islami Iran signed the agreement on behalf of their respective banks in Tehran. 

The SBP said the PBA’s objective is to provide a trade settlement mechanism to promote bilateral trade between Pakistan and Iran.

“This mechanism will be used for the payment of trade conducted via letter of credit and in accordance with international laws and regulations,” said the Bank.

In the next step, it said both the central banks will invite banks in their respective jurisdiction to act as authorised banks for undertaking trade transactions under this BPA. “Details of the mechanism will be issued by SBP in due course.”

The SBP further said this agreement would help in strengthening the trade links between the two countries.

Early last year, the United States lifted its 37-year old economic sanctions from Iran, paving a way for resumption of formal trade between pariah state and other countries. Iran has also been facing other international sanctions for its suspicious nuclear programme since 2007.

After the withdrawal of embargo, Pakistan, which is US key ally in war on terrorism, vowed to jack up the sagging bilateral trade with its neighbouring country.

Trade between Pakistan and Iran sharply fell to $30 million in the last fiscal year of 2015/16 from $1.32 billion in 2008-09, said the official statistics. Pakistan’s exports to Iran amounted to $30.579 million in the past fiscal year, while its imports stood at minuscule $195,000.

Last year, Pakistani Prime Minister Nawaz Sharif, at a meeting with his Iranian President Hassan Rouhani, vowed to lift the bilateral trade to five billion dollars by 2021.

Iran currently exports around 100 megawatts of electricity to Pakistan, which is also planning to increase this volume to 1,000 megawatts.

Oil and gas-rich Iran also wants to export energy to Pakistan.

A senior official told The News that Iran has conditioned the signing of free trade agreement with Pakistan with import of crude oil from Tehran.

Presently, Pakistan imports oil from Gulf countries.

So much so, Iran also wants utilisation of its crude oil in the refinery being built by China in Gwadar port and on top of that it also needs the assurance for its inclusion in China Pakistan Economic Corridor. China already has many commercial deals in oil and gas sector with Iran.

Iran has shown interest in Pakistani textiles, surgical goods, sports goods and agricultural products.

Pakistan also plans to set up industrial sites in the impoverished border area, especially petrochemical storage, and link the infrastructure to CPEC.

A meeting of Pakistan-Iran joint economic commission is scheduled to be held in Tehran on April 17-18. Sources said the meeting would discuss the issues to reach decision for mutual benefits.