The State Bank of Pakistan has fulfilled another requirement of International Monetary Funds by removing all cash margin requirements on imports. The Cash Margins are the amount of money, an importers have to deposit with their bank for initiating an import transaction such as opening a letter of credit which could be up to the total value of import.
The policy of Cash Margin was imposed under six circulars from 2017 to 2022. In a notification, the SBP says that it was withdrawing the existing Cash Margin Requirement (CMR) on import of items with effect from March 31, 2023.
The notification has been issued after the SBPs foreign?exchange reserves moved high by $280 million to $4.6 billion last week. A number of other requirements of IMF have been fulfilled by Pakistan but staff level agreement is still pending, creating multiple economic issues for the country.
If the agreement is signed, the tranche of $1.1 billion will be issued. This may?start the smooth economic activities in the country. Pakistan has been facing adverse balance of payments. The gap between imports and exports has been widening therefore different sort of conditions were imposed on importers so as to discourage the unnecessary imports. CMRs are used as a tool in this way as it is amount be to be deposited beforehand with the bank increases the opportunity cost for importers.
In 2017, the central bank had imposed 100 percent cash margin on 404 items and in 2018, the CMR was imposed on 131 items. In 2021, 100 percent CMR was imposed on 525 items. On April 7, 2022, 100 percent Cash margin Requirement was imposed on 177 more items.
According to the April circular, 100 percent cash margin was imposed on all items. The representatives of three telecom operators Jazz, Telenor and Ufone said that this is extremely detrimental to the industry. In April 2022, the CMR was decreased from 100 percent to 25 percent and in some cases, to zero. ??