SBP takes big step to narrow trade deficit

The State Bank of Pakistan (SBP) Friday imposed a 100 percent cash margin requirement on the import of some 404 items with immediate effect. The SBP issued a circular to all banks to formally announce the imposition of 100 percent cash margin on the import of certain items. With the imposition of 100 percent LC margin, the importers are now required to make 100 percent payment at the time of Letter of Credit (LC) opening and this step would possibly compel importers to reduce their imports due to liquidity constraints.
SBP is expecting that this regulatory measure that it took through exercise of powers entrusted to it under Banking Companies Ordinance, 1962, would discourage the import of these items with a nominal impact on the general public. The requirement of 100 percent cash margin has been prescribed on items such as motor vehicles (both CKDs and CBUs), mobile phones, cigarettes, jewellery, cosmetics, personal care, electrical and home appliances, arms and ammunitions, etc.
State Bank also expects that this regulatory measure would help accommodate incremental import of growth-inducing capital goods. It has been decided that banks, with immediate effect, will obtain 100 percent cash margin on the import of items enlisted by SBP, the circular said.
SBP has imposed LC margin on motor cars (CBU and CKD), wrist-watches, chewing gum, butter milk, curdled milk/cream, pocketsize radio cassette player, fish, sweet biscuits, juices, smoking tobacco, perfumes, shampoos and soaps, Import of articles of apparel and clothing accessories, leather, garments, including babies' garments and clothing accessories, blankets and travelling rugs, sports footwear, ski-boot, crockery including dinner sets, cooking ranges, electronic items including ceiling fan, pedestal and table fan, window or wall type air conditioners, electric ranges microwave ovens and wooden furniture will also requires 100 percent cash margin.
In addition, margin has been imposed on fruits including dates fresh, fruits including mango watermelon oranges, pineapple, oranges, apple, grapes, dates fresh, peaches, cherries and strawberries. SBP said that cash margin requirement will not be applicable on the imports by category-a and category-b investors identified in the automotive development policy, 2016. Bankers said the central bank's initiative will help narrow the increasing trade deficit and reduce the rising demand of dollar. Importers were importing more goods than the domestic requirement due to low margin on the import of luxury items, they added. It may be mentioned here that with $25.539 billion imports and $12.317 billion exports, the country's goods trade deficit has been widened by 10 percent to $13.222 billion during the first seven months of the current fiscal year (FY17).