SBP go-ahead must for import of some goods

KARACHI: The State Bank of Pakistan has asked banks to seek its permission before initiating transactions for import of some goods, it said on Friday.

According to a central bank circular, the goods for permission will be power generating machinery, other machinery, electrical machinery and apparatus, CKD (completely knocked down) mobile phones, and CKD motor cars.

“This requirement will be applicable for all import transactions initiated by authorised dealers (banks) through issuance and amendment of letter of credit, registration, and amendment of contract, making advance payment and authorising transactions on open account or collections basis,” it said in the circular.

“The above requirement shall not be applicable on import transactions initiated by the authorised dealers on or before the date of issuance of this circular letter. Authorised dealers shall be required to suitably amend the importer’s bank profile in Pakistan Single Window to ensure the aforementioned import transaction shall not be initiated on open account basis without prior permission from SBP.”

The new coalition government has imposed a ban on import of luxury and non-essential items.

This decision is taken in the light of recent dollar slippage, rising current account deficit and decline in country’s foreign exchange reserves.

The government said these measures would have a positive impact on the current account deficit as they would help control slippage of the rupee against the dollar.

However, analysts believe these measures are insufficient and might lead to further increase in smuggling via western borders.

“As per the government, these measures will save $6 billion on an annualised basis. However, problems on the smuggling front will further increase and adequate government measures are needed to curb these imports which are generally channeled through illegal ways, i.e. hawala hundi,” said an analyst at Insight Securities in a report.

These steps are directionally right but the government has chosen the easiest way to tackle pressure on foreign exchange reserves, it added.

“We believe this measure is a temporary patch. Much-needed reforms are required to bolster the economy and the government has to take tough decisions such as reversal in petroleum/electricity subsidies to bring the IMF on board, which is necessary to support the country's external financing needs,” the analysts said.