Pakistan has eased its restrictions on letter of credit (L/C) openings by increasing the threshold from US$50,000 to US$100,000, apparently in response to a substantial contraction in the trade deficit.

Restrictions on import L/C openings were imposed by the government to keep foreign exchange reserves under tight control, but local bankers say hard currency remains in short supply, so L/Cs will still be hard to come by.

L/C priorities

Governor of the State Bank of Pakistan (SBP - central bank), Jameel Ahmed, confirmed this week that the government has eased its stringent import policy of the past few months, and commercial banks have now been authorised to clear L/Cs of up to US$100,000.

But there will be priorities the governor told delegates this week at the Sustainable Banking Conference organised jointly by the SBP and the International Finance Corporation. Commercial banks must prioritise L/C clearances imports of overdue parts and machinery for projects near completion he says.

Currency shortages continue

Import restrictions imposed by Pakistan do seem to have had the desired effect, with a substantial 27 per cent contraction in the trade deficit during the four months to October according to official data.

The fall in imports from US$25 billion in the same period last year to US$21 billion this year may be attributed to government restrictions on L/C openings.

But industry sources reportedly told local media that US dollars remain scarce in the market and most banks are still not opening import L/Cs .

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.