KARACHI: The State Bank of Pakistan (SBP) has increased the amount of red tape needed to access dollars, Bloomberg on Thursday reported people with knowledge of the matter, as the nation’s foreign-exchange reserves drop at the fastest pace in Asia.
SBP told banks after currency devaluation last month that importers will need to inform the regulator of any requests for the US currency a day in advance and fill out a form for import payments, people told Bloomberg on condition of anonymity.
The measure applies to transactions that are not backed by a bank’s letter of credit, said one of the people. The central bank didn’t respond to a request for comment.
The finances of South Asia’s second largest economy are showing increased vulnerability ahead of elections in two weeks. Dollar reserves have dropped to the lowest level in more than three and a half years and record imports have widened the current account deficit. Pakistan has devalued its currency three times since December in an attempt to ease the pressure.
“Once you go into high current account deficit and reserves deplete, this happens,” Asad Sayeed, director at a consultancy Collective for Social Science Research said. “Investments are going to be affected. Your high growth time is over now.”
The economy faces “some very daunting challenges,” but the decision to approach the International Monetary Fund for support will have to be taken by the new government after the July 25 ballot, according to caretaker Finance Minister Shamshad Akhtar.
Moody’s Investors Service revised its outlook downward to negative from stable in June citing heightened external vulnerability risk, according to a statement.
“On the external front, there is a need to arrange external financing in the short-term, and resolve structural issues affecting competitiveness in the medium and long term,” the central bank said in a quarterly report on Wednesday.
Pakistan’s central bank has also doubled its local currency swap deal with People’s Bank of China, the nation’s largest trading partner, and is encouraging banks to make payments in Yuan transactions, according to the central bank’s statements.
China is financing the construction of power plants and infrastructure projects worth about $60 billion as part of the Belt and Road initiative that has helped limit power blackouts, but has also increased Pakistan’s machinery imports.
The Finance Ministry said in a statement this week that Pakistan will increase monitoring of currency movements after a global anti-money laundering agency in June placed the nation back on its terrorism-financing “grey” monitoring list.
Finance Minister Akhtar said that systems need to be upgraded at all ports and check points along the border to curb smuggling, according to the statement.
The central bank’s measure will also help document financial transactions
further, according to one of the people familiar with the matter.
