SBP has rolled back the restrictions on machinery, cars, mobile phones, and some other imports which were imposed in May 2022. The restrictions were imposed to lower the import bill of non-essentials by 50 percent due to the growing shortage of dollars in the interbank market. Now the dollar situation is much worse than what it was in May, and SBP is still opening all imports of chapters 84, 85, and 87. This does not make sense. There is more to it than what meets the eye.
There are two plausible reasons for this move. One is to appease the IMF, as the Fund is not happy with these administrative controls, and that step has been taken in the preparation for going back to the IMF. The other reason is that SBP has passed on the buck of opening L/Cs in these areas to the respective importers’ banks.
“Personally, I foresee more chaos as SBP has transferred the dirty job of restricting imports to the banks,” lamented an importer. “They may also be just transferring their own headache to us banks now. We don’t have any dollars, but now we would become the villains rather than SBP,” noted a banker. And SBP officials privately are not denying such claims of importers and bankers.
Ever since the imposition of these restrictions, SBP Deputy Governor Inayat Hussain and his team have relentlessly been dealing with importers on opening their respective L/Cs. Virtually every importer is calling them on phone and in person on regular basis. Now, the banks must deal with the mess.
There are reasons for believing that this is an eyewash. There is no way these imports could be normalized without hefty inflows of dollars, as SBP reserves are not enough to cover even a month of normal-pace imports. And the actual restrictions are just growing.
In November, when central bank reserves were $8.8 billion, SBP asked the banks to have certain limits on imports. In December, with reserves reduced to $7 billion, limits were reduced by another 30 percent. How can everything be normalized in January with reserves under $6 billion?
Anyhow, there are two elements that help normalize imports. One is to have additional flows. For that, all roads lead to the IMF. And the second is to adjust the currency to improve remittance and export flows and to reduce the import demand. And that is being pushed by the IMF, as well.
Without these two factors, there is no way the imports could be normalized. This step is to pass the buck to banks. It would make the life of bankers more difficult. Bankers fear that this step could hamper their relationship with clients, as they cannot allow all imports to open, and they must choose between the clients in preference.
The ground reality is becoming scarier. Without any inflows, time is not far before essential imports are rationed as well. Signs are telling. The government has already started unannounced load shedding at a time of falling demand, as the country cannot afford to import fuel. The situation could get worse. That is why the correcting currency is imperative. Without it, exports and remittances flow will decline further, and imported demand to not be curtailed. Thus, banks will have to impose more restrictions from January.