Karachi Chamber of Commerce and Industry (KCCI) has put forward a proposal suggesting that importers should be allowed to independently arrange foreign exchange for their import payments.
The proposal comes as a response to the persistent current account deficit, which has led to a decline in foreign exchange reserves and subsequent restrictions on the opening of Letters of Credit (LCs) by commercial banks.
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The decline in forex reserves has forced the State Bank of Pakistan (SBP) to restrict imports, issuing LCs only for essential items such as petroleum products, pharmaceuticals, and some edible oils and pulses. Consequently, the availability of LCs for a wide range of industrial raw materials has been limited, with banks issuing them on a selective basis. Commercial importers of raw materials have faced complete denial of LCs, resulting in severe shortages and adversely affecting numerous industries, particularly SMEs. The situation has led to the closure of many businesses, unemployment, and a subsequent revenue shortfall. Additionally, the prices of essential consumer goods have skyrocketed by 40% to 70%.
To address the unavailability of foreign exchange and the decline in inflows, the KCCI proposes the following measures:
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Importers should be allowed to arrange payment/remittance of foreign exchange through their own sources, including outside of Pakistan, enabling them to directly receive import documents from suppliers without relying on domestic commercial banks.
Direct financing by importers should be limited to raw materials, essential items, and machinery.
The list of items considered essential by the SBP needs to be expanded through stakeholder consultation.
Essential items that are currently not covered under LCs should be included to ensure their availability.
Luxury item imports should be prohibited under self-financing arrangements.
Registered importers should be permitted to conduct imports up to US$10,000 per month through a registered bank contract.
The KCCI supports its proposals with the following justifications:
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1. Allowing importers to directly arrange foreign exchange will relieve pressure on forex reserves.
2. It will divert foreign exchange away from grey channels used for smuggling or imports by Afghanistan.
3. Industries and exporters will benefit from the availability of raw materials, mitigating shortages.
4. Adequate supply of consumer goods will positively impact domestic consumer markets.
5. Cost-push inflation will be reduced.
6. There will be an increase in revenue collection.
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The Karachi Chamber of Commerce and Industry (KCCI) has recommended that importers be granted the authority to arrange foreign exchange for import payments independently. This proposal aims to address the current account deficit, shortages of raw materials, and the closure of businesses. If implemented, these measures have the potential to stabilize forex reserves, facilitate industries, ensure the availability of essential goods, and contribute to revenue generation. The proposal seeks to alleviate the challenges faced by SMEs and promote a more efficient and inclusive import system in Pakistan.
