“… (the) facility, allowed to authorised dealers to make advance payment, stands withdrawn with immediate effect,” the State Bank of Pakistan (SBP) said in a statement.
Previously, authorised currency dealers were allowed to make import advance payments against irrevocable letters of credit (L/C) up to 100 percent of the value of the goods and up to $10,000 per invoice for the import of all eligible items without the requirement of L/C or bank guarantee from the foreign supplier.
The central bank, however, said if authorised dealers deem that a request on the subject merits consideration, “they may approach State Bank of Pakistan along with appropriate recommendations on a case to case basis”.
Analysts said the restriction would help the government in curbing excessive outflow of dollars.
“Import growth needs to be controlled. This (restriction) may help,” Mohammad Sohail, chief executive officer at Topline Securities said.
International financial institutions warned the government of intensifying external account vulnerabilities, shadowing growth prospect. The country’s foreign exchange reserves could currently cover only 1.8 months of import payments.
Current account deficit widened to $15.961 billion, or 5.5 percent of gross domestic product, in the first 11 months of the current fiscal year of 2017/18, due to widening trade deficit. It is projected to increase to six percent of GDP till the fiscal yearend.
Trade deficit widened 15.9 percent to $37.7 billion during the last fiscal year of 2017/18 as imports continued to outweigh exports. Trade deficit amounted to $32.5 billion as exports increased 13.7 percent to $23.2 billion, while annual imports soared 15.1 percent to $60.9 billion.
US credit ratings agency Moody’s said Pakistan is among the countries that are “most vulnerable to a stronger US dollar”.
Rupee lost around 15 percent against the dollar since December last year.
The strengthening of US dollar since mid-April led to a sharp currency depreciation and significant declines in foreign exchange reserves in a number of emerging and frontier market countries, increasing credit risks for those with large external funding needs.
The International Monetary Fund projected that Pakistan’s external debt and liabilities could peak to $144 billion in the next five years from $93 billion in the current fiscal year of 2018.
External debt repayment would reach $19.7 billion by 2023 as against $7.739 billion in the fiscal year of 2018.