Due to deterioration in the external sector amid a continual decline in exports and foreign exchange reserves, the federal government has linked the payments for defence purchases with approval from the finance ministry.
In view of the declining foreign exchange reserves, sources said that the Ministry of Finance has changed its policies for the military budget. They also said that obtaining a letter of credit (LC) for imports against the normal defence budget would need getting the approval of the finance ministry’s foreign finance division.
The finance ministry already has the right to impose sanctions on import payments made to support the Armed Forces Development Programme. According to reports, new LCs and carryover LCs will be subject to the new rules.
Finance Minister Ishaq Dar and Secretary of Defense Lt Gen (R) Hamooduz Zaman Khan met to examine these financial limitations. The discussion covered fiscal concerns connected to security as well as defence and economic issues, the ministry of finance said on Thursday.
The finance minister highlighted the country’s fiscal position, economic outlook, and various federal government initiatives to stabilise the economy, who also predicted that the results of these initiatives would soon be reflected in a strengthened fiscal position and increased economic activity.
According to the sources, the defence secretary mentioned the difficulty in obtaining LCs and launching new ones. When contacted for comments on the matter of restricting the ability to open new LCs for imports, the Ministry of Finance remained silent.
The State Bank of Pakistan (SBP) and the Pakistan Bureau of Statistics (PBS) recently disclosed new statistics showing a fall in foreign exchange reserves and export revenues during the current fiscal year, coinciding with the new rules’ revelation.
Although the pattern of reserves and non-debt-creating inflows is depressing, it is consistent with the generally unfavorable market perceptions of the prospects for the economy’s external sector.