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Food supply at risk as banks reluctant to open LCs



  • Thousands of shipping containers stuck at Karachi Port.
  • Banks should facilitate import of necessary items: SBP.
  • Banks reluctant in opening LCs for import of necessities.

KARACHI: Despite the State Bank of Pakistan’s (SBP) directives about import facilitation, the banks remain hesitant in opening letters of credit (LCs) for the import of necessities, posing threat to the food supply, The News reported Friday.

Due to the banks’ reluctance to guarantee foreign exchange payments, thousands of shipping containers — including perishable, and non-perishable foodstuffs and medical supplies — are stuck at the Karachi Port after offloading.

The banks show reluctance in opening letters of credit for the import of necessities like edible oil and pulses. This could also escalate price pressures and create a shortage of medications. Last month, the SBP lifted import restrictions that went into force on January 2.

“In view of the orders issued last month, the SBP has given banks the power to facilitate imports. Thus, banks are not restricted from opening LCs for the importation of essentials such as food and medicine. Banks are free to make their own decisions on the opening of LCs,” SBP spokesman Abid Qamar told The News.

According to the SBP, banks should give preference to or facilitate imports that fit into the category of necessary imports, such as those related to food (wheat, edible oil, etc.) and pharmaceuticals (raw materials, life-saving/essential medications, and surgical devices, including stents).

The SBP has also directed banks to prioritise imports of energy, goods by export-oriented businesses and inputs for agriculture.

More than 6,000 containers of pulses are stuck at ports, according to Abdul Rauf Ibrahim, chairman of the Karachi Wholesale Groceries Association. Banks have reservations about paying for these imports.

“This threatens the nation’s capacity to import these basic foods. Importers have paid shipping companies $48 million in detention fees for these stranded containers. In the month of Ramazan, there would be a new problem in the supply and cost of pulses if these containers are not released,” Ibrahim said.

Banks have been advised by SBP to prioritise certain essentials and export-related imports. However, they need to either match their own foreign currency receipts with outgoings or procure shortfalls from other banks in the interbank market, according to Ehsan Malik, the CEO of Pakistan Business Council (PBC).

“Following the wide Rs25-40 spread between the interbank rate and other open market rates, approximately Rs400 million monthly remittances from overseas Pakistanis have moved from banking channels to the havala system,” Malik said.

“The reduced availability of forex in the interbank market therefore constraints the ability of banks to meet their clients’ import needs,” he added.

The PBC has pointed out to the government that aside from political uncertainty and the outflow of dollars to Afghanistan, the main reason for the growing spread between the official and open market rates for the US dollar was hoarding in the expectation of significant devaluation of the rupee.

The spreads on other currencies is not as significant as the US dollar because they are not regarded as a store of value as much as the US dollar or gold is, and we have seen rates of both go up.

“PBC has suggested two options, aside from stemming the outflow of dollars to Afghanistan. The first is to offer PKR bonds, returns on which are linked to the movement in PKR value relative to the US dollar. This would remove the need to acquire dollars and reduce the demand pressure,” Malik said.

The second is to allow exporters and overseas Pakistanis to convert part of their export proceeds/remittances into “tradable import credits”. This would also help balance supply with demand of the dollar in the open market as well as incentivise exporters and overseas Pakistanis to remit through official channels, he explained.

Tradable import credits would also offer the opportunity of items not on the priority list of SBP to be imported. A criticism levelled against the aforementioned suggestions is that they perpetuate multiple exchange rates.

The current reality is that three rates already exist for the dollar and the above recommendations would help narrow the spread, he noted.

Malik said that as long as political and economic uncertainty prevails, there would be a spread between the interbank and open market rates and “until we learn to live within our means, there will be a shortfall of forex for imports”.

He said there was a limit to how much and for how long friendly countries and multilaterals can provide breathing space and fund our consumption.

“In the immediate time frame when our liquidity and solvency is in question, it is imperative that we secure IMF support for another programme. Even with that, we will need to find breathing space for fundamental reforms,” Malik said.

“This can be facilitated by re-profiling our debt through advice from sovereign debt advisors. Pakistan is not alone in seeking restructuring of debt. Sovereign debt advisors are engaged by over 20 countries,” he added.

Pakistan is grappling with a balance of payments crisis brought on by high foreign debt repayments and a lack of external financing, which have hammered its foreign reserves and created chronic dollar shortages.

As of January 6, the SBP’s foreign exchange reserves plummeted to almost a nine-year low of $4.3 billion, posing a significant challenge for the country in terms of financing imports.


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




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.




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.




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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