The State Bank of Pakistan (SBP) has halved the 100 per cent advance foreign exchange payment importers have been able to make against irrevocable letters of credit (L/Cs) for the last few months.

The latest circular issued by the bank in late April alters some of the terms of conditions in a 13 September circular that mandated advance payments against irrevocable L/Cs and firm registered contracts up to 100% of the FOB or CFR value of the goods.

Bank guarantees

The bank says that importers wanting to make advance payments up to a maximum of 50 per cent of the FOB or CFR value of the goods against registered contract will now have to provide a bank guarantee from the bank of the foreign supplier for the amount of the advance payment.

Importers will also have to approach the Exchange Policy Department on a case-to-case basis, complete with an explanation of the reasons why an advance payment is to be made.

Amendments

Apart from the reduction in the amount of foreign exchange advance importers should pay, the April circular also says that the penalty rate has increased for importers not meeting the terms and conditions of the new regulations.

Now the penalty rate is 0.5 per cent of contract value, while the September 2007 circular set a penalty rate of 0.25 per cent of contract value. All other terms and conditions of the September 2007 circular remain unchanged.

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