The State Bank of Pakistan (SBP) has eased the import restrictions that were imposed in December last year in an attempt to appease the International Monetary Fund (IMF).
However, both the business community and analysts are skeptical about the impact of this move, emphasizing that substantial changes in practical business activities can only occur if foreign exchange reserves are significantly bolstered.
Previously, banks were instructed to prioritize certain types of imports due to the country’s poor foreign exchange reserves and significant trade deficit. However, this latest decision to expand import options comes at a time when the country is striving to avoid a situation resembling default.
The previous circular had advised banks to prioritize imports related to essential sectors such as food items, pharmaceuticals, energy, raw materials, and spare parts. These priority imports were to be made on a deferred payment basis, preferably from parents or sister concerns of the importers, with a payment timeline extending beyond 365 days from the shipment date.
Experts have warned about the negative impact of import restrictions on car assembly plants, cement and steel factories, and other industries heavily reliant on imported raw materials. With inflation reaching approximately 38pct and interest rates soaring to 21pct, business activities are expected to remain compromised in the short term. During the first five months of this year, Pakistani scrap imports have experienced a significant decline, with a YoY decrease of 53pct to 717,605 tons. Finished steel imports have also decreased by 25pct YoY to 928,050 tons during the specified period.
With less than a week remaining before the expiration of the IMF’s Extended Fund Facility agreed upon in 2019, Pakistan is facing a precarious situation. The country has been striving to secure USD 1.1 bln of funding, which has been stalled since November, under the facility’s ninth review negotiated earlier this year. Analysts warn that Pakistan’s acute balance of payment crisis could escalate into a debt default if the awaited IMF funds are not received, as the central bank’s foreign exchange reserves are only sufficient to cover one month of controlled imports.
