Cash margin requirements for industrial imports removed

KARACHI: The central bank on Thursday abolished requirements for importers to keep their funds in the banks against certain imports, freeing up liquidity for businesses to tide them over economic slowdown.

The State Bank of Pakistan (SBP) said it eased 100 percent cash margin requirement on the import of certain raw materials to support manufacturing and industrial sectors and further enhance their capacity to contribute towards the recovery of the economy in post COVID-19 era.

The cash margin condition was initially imposed in 2017 on 404 items and later in 2018 on a further 131 items, with a view to contain the import of mostly consumer goods and to allow room for the import of more growth-inducing items.

“Considering the challenges posed by the COVID-19 to the manufacturing sector and other economic segments, and on the representations made by various businesses and associations, the SBP reevaluated the cash margin requirements and decided to remove this requirement on 106 items/HS codes,” the SBP said in a statement. “The removal of the cash margin requirements on these items will support businesses’ cash flows and liquidity, by freeing up funds previously held with the banks under cash margin against imports, and route these funds towards avenues of growth and development that will benefit the economy.”

The decision came on the heels of withdrawal of customs and regulatory duties on industrial imports in line with the businessmen’s demand. The Economic Coordination Committee of the cabinet abolished the additional customs duty and regulatory duty on certain imports of textile sector. The total revenue impact of these exemptions is estimated at Rs533 million. The aim is to increase the share of manmade fibers in the textile goods for better unit prices in the international markets, product diversification and value addition.

The government continued to discourage imports to reduce current account deficit, but this caused slowdown in industrial production much reliant on imports. The decisions to relax imports are taken as the current account position is improving.

The country posted a current account surplus of $805 million in the first two months of the current fiscal year compared with a deficit of $1.2 billion in the corresponding period last year. However, exports, during the period, fell 4.3 percent to $3.6 billion, while imports declined 6 percent to $7 billion.

The SBP said it remains committed to facilitate industries and businesses in contributing to the growth and development of the country, and is ready to take any further actions required to support the overall manufacturing and industrial activity.