The State Bank of Pakistan (SBP) has begun to stifle the outflow of small dollar sums of less than $100,000 in order to prevent a further decline in the reserves, putting numerous factories at risk of closure and financial fines. Pakistan is using different variety of capital restrictions, which include strict measure to avoid going into default
In an effort to stop the reserves from further depleting and placing countless factories at risk of closure and financial penalties, the State Bank of Pakistan (SBP) has started to restrict the outflow of small currency amounts of less than $100,000. In order to avoid a situation like default while the International Monetary Fund (IMF) delays approving and disbursing a loan tranche of $1.12 billion, Pakistan is reportedly implementing a variety of capital restrictions, including restrictive measures.
However, the SBP has since made the disclosure of these documents contingent upon its approval, delaying import clearance in order to save money. Today’s shortage of raw materials is forcing several companies to consider reducing their output. Factories that import raw materials to make food, medicines, and iron are currently experiencing severe supply shortages. The mill is on the verge of closing, according to Ibrahim Tariq Shafi. He is an Executive Director of Ittefaq Iron Industries Limited. Ibrahim said that his factory imported raw materials from Dubai but due to non-release of import documents and non-availability of raw material the mill is about to close.
According to Shafi, his company has already paid Rs 7.5 million in demurrage fees to the port authorities since the central bank’s actions have caused a delay in the clearance of their goods, which are currently stranded at the port. The Largescale Manufacturing Index (LSMI) output decreased 1.3 percent in May compared to April, according to the Pakistan Bureau of Statistics, showing that sectors have begun to feel the heat of contractionary measures. According to the PBS, the LSM climbed overall by 11.7 percent from July through May of 2021–22 compared to the same time last year. Details revealed that even when the amount was as little as $33,571, the central bank did not grant clearance to clear the import documents.
At the ports as of July 5, about 15 shipments from the Ittefaq mill with a combined worth of just $2 million were still pending.
Only four of these were approved by the central bank, including the two that were cleared this week.
Ibrahim claims that since no foreign supplier will want to work with us or anybody else under the cash against document arrangement, all industries that rely on imports will be severely harmed and eventually shut down as a result.
For the purpose of making steel, the company imports ferro and scrap.
The regional banks have been warning their customers that even tiny sums, such those under $100,000, cannot be cleared in full for each category individually.
This is true even if the central bank likewise prohibits the unfettered repatriation of dividends. Along with placing quota limitations on other commodities including autos and cellphone parts, the federal government had also banned the importation of about 41 dozen other products. The federal government imposed an import embargo on these products exactly two months ago, and it has not yet been lifted. According to a representative of the Commerce Ministry, the administration is examining the effects of the import ban and will shortly present a summary to the federal cabinet for consideration.