SBP imposes cash margins on imports

KARACHI: The State Bank of Pakistan (SBP) on Monday imposed 100 percent cash margin on the imports of 131 mostly non-essential items for the consumers in its latest attempt to curb a hefty trade deficit that is depleting foreign exchange reserves at a faster pace.

“In exercise of powers vested in the State Bank of Pakistan under the Foreign Exchange Regulations Act, 1947, State Bank of Pakistan Act, 1956 and other enabling laws, it has been decided that banks, with immediate effect, shall obtain 100 percent cash margin on the import of items,” the SBP said in a circular.

The requirement of 100 percent cash margin has been prescribed on items such as vegetable oils and its fraction, whey powder, pencils and crayons, sorghum, tyre rubber for bus, air conditioning machines, auto bulbs, and glassware, etc.

The move came after the central bank depreciated currency by 5.3 percent to 128 against the dollar to cool external sector pressures. The SBP also hiked policy rate by 100 basis points to 7.5 percent on Saturday in order to tame aggregate domestic demand and other challenges being faced by the economy.

The SBP is taking administrative measures to arrest rising growth of imports. The current account deficit deteriorated to $16.0 billion during the first eleven months of FY18, which is 1.4 times over the same period last year. The SBP’s liquid foreign exchange reserves witnessed a net reduction of $6.7 billion to reach $9.5 billion as of July 6, 2018. The Ministry of Finance has reportedly tailored another plan to increase regulatory duty on more than one thousand imported items, estimating an additional collection of $1.12 billion which would help reduce trade deficit.