State Bank of Pakistan (SBP) on April 11, 2023 revised the instructions regarding retention period of export proceeds with authorized dealers upon realization.
According to existing instructions, Authorized Dealers (ADs) are required to buy export proceeds from exporters at a minimum rate of the weighted average customer exchange rate if the export earnings are not converted into Pakistani Rupees within the retention period.
However, a new decision has been made that the ADs will now purchase such export proceeds at the prevailing market exchange rate at the end of the retention period.
This change in policy means that ADs will no longer be required to purchase export proceeds at a fixed rate, but rather at the prevailing market exchange rate. This can potentially benefit the exporters as they may receive a higher rate for their export earnings, depending on the prevailing market conditions.
It is important to note that the retention of export proceeds policy is still in place, and exporters are required to retain a portion of their foreign currency earnings in a local bank account for a certain period of time. The new decision only affects the rate at which ADs will purchase such export proceeds at the end of the retention period.
Overall, this change in policy could be seen as a positive step towards promoting greater flexibility in foreign exchange transactions and encouraging exports, as it may provide greater incentive for exporters to comply with the retention of export proceeds policy.
Retention of export proceeds refers to the requirement by some countries that exporters must keep a portion of their foreign currency earnings in a local bank account for a certain period of time.
This policy is often implemented by developing countries in order to ensure that they have access to foreign exchange reserves, which can be used to pay for imports and service foreign debts.
Retention of export proceeds can take various forms, including mandatory deposits, minimum balance requirements, or compulsory conversion of foreign currency earnings into local currency. The percentage of export proceeds that must be retained can vary, depending on the country and the specific policy in place.
Some countries implement retention of export proceeds as a temporary measure to address short-term foreign exchange shortages. However, others may have long-standing policies in place to ensure a consistent flow of foreign currency reserves.
While the policy can help to build foreign exchange reserves, it can also have drawbacks. For example, it can discourage foreign investors and exporters, who may view such policies as a restriction on their ability to freely use their earnings. It can also lead to the accumulation of large amounts of foreign currency in local bank accounts, which can be vulnerable to misuse or corruption.
Overall, the impact of retention of export proceeds on a country’s economy will depend on a range of factors, including the specific policy in place, the country’s broader economic conditions, and the balance between the benefits and drawbacks of the policy.
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