Pakistan's central bank has responded to pressure from operators of the country's refineries to increase credit limits required to open letters of credit (L/Cs).

The country's banks have been reluctant to increase credit limits for downstream oil companies due to a major debt default in the sector, but the State Bank of Pakistan (SBP) has now eased its rules with the aim of providing continuity of crude oil imports and to ensure availability of petroleum products for consumers.

Working capital squeeze

Pakistan's refineries have been seeking support from the government over recent months due to a severe squeeze on their working capital position due to rocketing oil prices and the depreciation of the rupee against the US dollar.

Refineries need L/Cs to import crude oil from which to produce refined products such as petrol, diesel and furnace oil.

Debt default

Commercial banks however have been reluctant to extend credit lines to oil sector participants due to recent downstream petroleum marketer Hascol's default on US$300 million of debt.

The central bank is now monitoring import transactions and credit exposures of oil sector participants to ensure banks accommodate the credit needs of the sector promptly.

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