Despite recent directives from the State Bank of Pakistan (SBP) apparently encouraging banks to make it easier for some importers to open letters of credit (L/Cs), reports suggest that the country's lack of foreign exchange is blocking access to L/Cs and hampering trade across most sectors.

Essentials such as food, medicine and fuel are in short supply, and with foreign exchange at a critical level of US$4.3 billion - barely enough for three weeks of imports - the prospects for easily accessible L/Cs look doubtful.

Street protests

The situation is so dire that traders in Karachi took to the streets last week and protested outside the SBP against the non-clearance of containers and difficulties obtaining L/Cs. The protesters also forced the closure of several banks and severely disrupted traffic in the area.

Karachi Timber Merchants Group meanwhile triggered a protest against the non-acceptance of remittance documents and L/Cs by organising a shutdown of all shops in the city's timber market. The group says 700 containers of wood have been waiting for clearance at the city's port for 45 days.

Thousands of shipping containers are reportedly stranded at Karachi Port after offloading due to banks' reluctance to guarantee foreign exchange payments, with foodstuffs and medical supplies amongst the cargoes.

Food shortages

Pakistan is facing its worst-ever flour crisis with parts of the country reporting a shortage of wheat while stampedes have been reported in several areas, including Khyber Pakhtunkhwa, Sindh, and Balochistan provinces.

Edible oil importers and ghee manufacturers have been informed unofficially L/Cs cannot be opened at the interbank exchange rates, but reports suggest some banks will open L/Cs at a substantial premium over the official exchange rate.

Oil crisis looming

The Oil Advisory Council has written to the SBP warning that a "significant scarcity" of petroleum products in the country is likely if banks do not issue L/Cs for oil imports.

The council says several import shipments have been delayed and numerous others remain stranded in transit as a result of the failure of banks to open L/Cs promptly.

Industrial disruption

Industries affected include shipbreaking. Industry journal TradeWinds says Pakistan's central bank has put a stop to issuing L/Cs for scrapped ships, meaning one recent sale has been sent to Indian breakers instead.

Beco Steel says it is halting production until further notice owing to delays in the approval of L/Cs. Another listed company, Sitara Peroxide, has told shareholders it cannot continue production for several reasons, including the non-clearance of L/Cs for necessary raw materials.

Auto manufacturers

Pak Suzuki has said its motorcycle plant will continue operating but its automobile plant will remain closed until at least 20 January.

Millat Tractors, which manufactures Massey Ferguson tractors in Pakistan, says it hopes to resume production this week.

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