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Commercial banks refuse to issue letters of credit to edible oil importers

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  • Edible oil importers, ghee manufacturers told their LoCs can’t be opened at interbank exchange rates.
  • Banks willing to do business if importers open letters at Rs250 per dollar.
  • PVMA chairman requests SBP to address issue immediately.

LAHORE: Commercial banks are refusing to issue letters of credit for edible oil imports despite the exclusion of the sector from the condition of prior permission from the central bank, The News reported Friday. 

Edible oil importers and ghee manufacturers have been informed unofficially that their letters of credit cannot be opened at the interbank exchange rates. However, the commercial banks were very much willing to do business with these importers if they were willing to open credit letters at Rs250 and above the exchange rate against a dollar.

Pakistan Vanaspati Manufacturers Association (PVMA) Chairman Sheikh Abdul Razzaq in a letter to the State Bank of Pakistan (SBP) governor said that “the ‘Commercial Banks’ are conveying to the importers-cum-manufacturers of edible oil that with immediate effect the edible oil has been excluded from the list of ‘Essential Items’ and hence turning down the requests for opening of L/Cs/retirement of documents”.

He further mentioned that the un-hindered opening of letters of credit/retirement of documents was inevitable. It should be given priority as accorded by SBP earlier vide EPD circular letter no. 20 of 2022 dated December 27, 2022 to avoid any crisis in the country, which could lead to increase in prices of cooking oil/ghee and shortage due to non-availability of the raw material (edible oil).

Pakistan imports 90% of its edible oil demand to meet the national requirement of over 4.5 million metric tonnes per annum. The existing domestic stocks are sufficient to meet the demand for only three to four weeks. However, the interruption in opening letters of credit could disrupt the smooth supply line and result in market disruption.

PVMA chairman requested the SBP to address the issue immediately and set aside the likely panic in the market, which might translate into a price hike, hoarding or retarded imports resulting in shortages.

“The industry is experiencing a unique and unprecedented kind of challenge wherein despite of sufficient stocks discharged in custom bonded warehouses at Karachi, it is unable to lift them due to refusal by banks to retire the documents,” he said. 

Razzaq urged the SBP to direct the ‘commercial banks’ to honour the edible oil importers requests for credit letters and further inform the general public through media campaigns.

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In a first for history, PSX crosses the 77,000 milestone.

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At 77,213.31, the benchmark KSE-100 hit an all-time high, up 1,005.15, or 1.32%, from the previous close of 76,208.16.

The government’s readiness to seal an agreement with the International Monetary Fund (IMF) following the budget was cited by analysts as the reason for the upward trend.

Experts anticipate that in an attempt to bolster its position for a fresh bailout agreement with the International Monetary Fund (IMF), the budget for the fiscal year ending in June 2025 would set aggressive fiscal goals.

Budget for Pakistan, 2024–2025
Pakistan’s budget for the fiscal year 2024–25, with a total expenditure of Rs18.877 trillion, was presented on Wednesday by Minister of Finance and Revenue Muhammad Aurangzeb.

The Finance Minister, Muhammad Aurangzeb, outlined the budget highlights. He stated that the GDP growth target for the fiscal year 2024–25 is set at 3.6 percent, while the inflation rate is anticipated to stay at 12 percent.

He stated that while the primary surplus is anticipated to be 1.0 percent of GDP during the review period, the budget deficit to GDP is forecast to be 6.9 percent over the period under review.

According to the minister, tax income collection increased by 38% in the current fiscal year, and the province will receive Rs7,438 billion. The Federal Board of income expects to earn Rs12,970 billion in revenue for the upcoming fiscal year.

In contrast to the federal government’s projected net income of Rs9,119 billion, he stated that the federation’s non-tax revenue projections are set at Rs3,587 billion.

The federal government’s total outlays are projected to be Rs18,877 billion, with interest payments accounting for the remaining Rs9,775 billion.

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Pakistan currently has $14.38 billion in foreign exchange reserves.

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Pakistan’s commercial banks’ reserves, which stood at $5.28 billion at the conclusion of the week ending on June 7, rose by US$174 million, according to a central bank statement.

Reserving US$6.2 million less, the SBP now has US$9.10 billion in reserves. The causes for the decline in the reserves it had were not disclosed by the central bank.

The SBP released a statement that stated, “SBP reserves decreased by US$ 6 million to US$ 9,103.3 million during the week ended on 07-June-2024.”

The State Bank of Pakistan’s (SBP) foreign exchange reserves were reduced by US$ 63 million as a result of repaying external debt, with the reserves standing at US$ 9.093 billion as of earlier on June 6.

The central bank spokesperson said in a statement that as of the week that concluded on May 31, the nation’s total liquid foreign reserves were $14.31 billion.

In terms of net foreign reserves, commercial banks have US$ 5.22 billion of the overall foreign reserves, according to the SBP.

SBP reserves dropped by US$ 63 million to US$ 9,093.7 million during the week that ended on May 24, 2024, according to the announcement.

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In the local market, the price of gold plummets to Rs240,700/tola.

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Gold with a 24-karat purity level has dropped by Rs1200/tola on the local market.

Each tola of 24-karat gold is now selling for Rs240,700, with a further drop of Rs1029 bringing the price of 10 kilos of gold to Rs206,361. These figures are courtesy of the All Sarafa and Jewelers Association.

Meanwhile, after a $2 decline on the global market, one ounce of gold will be valued $2315.

A tola of gold was worth Rs 600 more on Wednesday.

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