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Forex: industry makes prudent move

ISLAMABAD: The country’s struggling industry has sought government’s nod to use foreign exchange (dollars) already with them as State Bank of Pakistan (SBP) is opening their Letters of Credit (LCs).

This was revealed at a meeting of Senate Standing Committee on Commerce, which met in Wednesday with Senator Zeeshan Khanzada in the chair.

The Committee had sought detailed briefing on the problems faced by the business community especially textile industrialists due to non-clearance of LCs causing closure of industrial units and increasing unemployment in the country.

The Committee, in its previous meeting had decided to also invite officials from the SBP for a comprehensive briefing on the issue of LCs but no official from SBP was present at the meeting.

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Senator Fida Muhammad argued that it would have been better if the State Bank officials had given the briefing themselves.

Deputy Chairman Senate, Senator Mirza Afridi informed the meeting that State Bank had set a limit of foreign exchange for each bank and queried as to how a bank with more branches in Karachi will be able to arrange dollars for every importer.

Senator Afridi further observed that if the State Bank asks for deferred payments then who will pay this money after one year if the dollar is more expensive then?

Deputy Chairman Senate maintained that LCs of the textile industry are not opening, people are becoming unemployed, and the industry has closed.

He suggested that inter-bank rates should be increased as people are not sending dollars through the banks. People are preferring to send dollars through Hundi/Hawala due to difference of Rs30/$ in inter-bank and open market rates.

“If SBP allows importers to arrange dollar themselves for trading purposes, then all hidden dollars will come out,” he argued.

Secretary Commerce informed the Committee that the industry had proposed to the government to allow it to arrange foreign exchange itself.

“The proposal is that they (industry) may be allowed to use their own dollars to open/retire LCs,” said Secretary Commerce.

According to Secretary Commerce, the government has discussed barter trade with Iran and efforts are being done to formally start it as early as possible, adding that business-to-business barter trade will also start soon if dollars are not required.

He said there is no ban on barter trade by any country, however, it will be specified which items cannot be traded through barter.

Senator Dinesh Kumar who hails from Balochistan said that dollars are being smuggled to Afghanistan whereas gold is going to Iran illegally.

He suggested that not only Commerce Ministry and SBP but also Security Agencies should play their due to role to stop this practice.

In reply to a question, Secretary Commerce explained that the government cannot ban imports from the European Union (EU).

According to a press release, discussing issues faced by the business community especially textile industrialists due to non-clearance of LCs, the Committee was informed that the SBP had directed authorised dealers to seek prior permission from Foreign Exchange Operations Department (FEOD), SBP-BSC for initiating the import transaction of specific goods through issuance of letter/amendment of credit, registration/amendment of contract, making advance payments and authorizing transactions on open account or collections basis.

The MoC made a list and requested SBP to withdraw the condition for prior permission for certain essential goods. Regular meetings were held in this regard and assurances were given that banks would prioritise import related transactions of export oriented sectors. As of December 2022, restrictions have been removed for import transactions pertaining to HS codes Chapter 84 and 85 and have been effective from 2nd January, 2023. Requests for import transactions have already been submitted.

The Committee stressed the need for stringent measures to be taken to ensure that the issue is addressed at the earliest. The issue of dollar smuggling was discussed and the Committee recommended that dollar rates in banks be increased to address this menace.

It was asserted that a mid-way route must be adopted in order to facilitate both the government and traders. Converting DA payments into cash payments was recommended in order to expedite matters and increase cash reserves.

A letter recommending stringent measures at the earliest to facilitate traders, curb dollar smuggling, and increase dollar rates in banks will be sent to the Finance Committee and a copy of the same will be forwarded to the Senate Standing Committee on Commerce as well. It was recommended that representatives from SBP be invited in the next meeting.

Reviewing the matter import of edible food items from various countries ensuring availability in markets on affordable rates the Committee argued that trade ties must be enhanced with the African bloc as well, especially Ethiopia since edible items are available there at extremely economical rates.

Copyright Business Recorder, 2023

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