State Bank of Pakistan (SBP) has allowed the country's banks to make advance payment of up to 50 per cent of the value of imports against letters of credit (L/Cs) for plant, machinery, spare parts and raw materials.

The facility is limited to L/Cs for manufacturing concerns in Pakistan using these imports for their own use only.

Foreign exchange

The move is one more relaxation of tough measures introduced in 2018 that responded to poor conditions in the foreign exchange market and a deteriorating balance of payments situation.

In July 2018, SBP withdrew the advance payment facility against L/Cs but has subsequently lifted some of restrictions.

Restrictions relaxed

In November 2019, SBP allowed advance payments of up to US$10,000 per invoice for imports of raw materials and spare parts to manufacturing concerns for their own use only.

The central bank also eased restrictions on the acquisition of services such as consultancy from abroad.

Pressure easing

Advance payments are now allowed for essential imports in the medical, education and defence sectors. Most restrictions however remain in place.

In May 2019 the central bank introduced a market based exchange rate system which has eased pressures in the foreign exchange market and improved the balance of payments.

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