PBC seeks removal of cash margin requirements on industrial inputs

KARACHI: The State Bank of Pakistan (SBP) needs to remove cash margin requirements on industrial raw materials that stuck Rs200 billion worth of manufacturers’ funds with the banks, an industrial official said.

Ehsan Malik, chief executive officer of the Pakistan Business Council (PBC) said the SBP should remove a letter of credit margin on 154 items of industrial inputs on which more than Rs200 billion of manufacturers’ funds were stuck with banks.

Several industrial raw materials are still not included in the list of items exempted from cash margin requirements.

“We have been assured by the bank that this matter is under review to ensure that much needed liquidity is released to manufacturers,” Malik said.

The SBP on Thursday 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 the post-lockdown 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.

The government that has been discouraging imports for the last two years is now changing its policies following the improvement in current account position.

The National Tariff Commission has been tasked to identify the complete value chains, collect data from the primary and secondary sources, visit relevant industries, chambers and associations for collection and verification of data, conduct public hearings and prepare a three years tariff plan.

And finally, the proposed three-year tariff plan will be submitted to the tariff policy board for approval and inclusion in the annual budget.

The World Bank has attributed the low reliance of Pakistani textiles and apparel exporters on imported artificial fibers to exorbitant tariffs and regulatory duties on essential raw materials, which the bank said are four times the average in East Asia, including China and Taiwan.

The World Bank Group, in its flagship report on global value chain, said the country’s tariffs on intermediates average 8 percent — four times the average in East Asia — and its regulatory and additional duties (para-tariffs) “are high”.

“Thus, Pakistani exporters of textiles and apparel — the country’s major export sector — rely mostly on domestic

cotton rather than on imported artificial fibers, such as polyester (the leading input to the fast growing global imports of apparel),” the World Bank said in a report last year.