The State Bank of Pakistan (SBP), in order to meet the genuine needs of importers, has decided to restore the Forward Cover Facility against imports with immediate effect. According to a circular (FE CIRCULAR NO 02) issued on Tuesday, the restored facility will be subject to compliance of all related instructions contained in Chapter IV, FEM-2002 and with some terms and conditions.
According to SBP, the Forward Cover Facility will be made available to importers against the Letter of Credit only and no facility will be provided for a period of less than one month. Roll over in those cases where import payment is not made in accordance with the schedule, will be allowed subject to the condition that the roll over is not less than one month, it added.
In terms of instructions contained in chapter IV of FE Manual 2002, banks will ensure ab initio that the facility is being availed for genuine import transaction and that the importers do not hedge more than the underlying exposure. Furthermore, if during SBP's inspection or at any point of time, it is found that the said facility was misused for and not against genuine transactions, action will be taken by SBP under Foreign Exchange Regulation Act, 1947, against the concerned bank and the importer.
As per the existing regulations, all forward contracts against which the L/Cs are cancelled, are required to be closed out on maturity and differential is settled between the importer and the bank. However, all such cases, where underlying L/Cs were cancelled will be submitted to SBP on maturity with full details, reasons and justification, for further action by SBP as deemed appropriate in terms of regulations under the FERA 1947. It may be recalled that under the para 1 of FE Circular No 8 dated July 08, 2008, forward booking against all types of imports was temporarily suspended.
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