Importers, bankers claim smooth sailing on LCs, deny govt curbs

July 22, 2024 (MLN): Big importers are pushing back against the idea that the government has imposed any significant control over imports.

“From our vantage point, there are no strings attached. We've had smooth sailing with opening Letters of Credit (LC) as commercial importers," a leading importer shared with Mettis Global.

Similarly, import managers from several banks have outright denied any import restrictions. They attributed low demand as the primary reason for the recent decline in imports.

Bloomberg recently released a report stating that Pakistan must let the rupee fall 19% against the dollar to stabilize its external debt and remove all existing import controls.

"We think this is unlikely. The government will instead lift import curbs gradually and prop up the currency," the report noted.

The report further added that the government has been easing import controls gradually over the past year under IMF directives. A complete removal of restrictions in a single move is unlikely for two main reasons:

1. A sharp rupee depreciation from the current 278-280 range in the first half of 2024 would fuel inflationary pressures. Although inflation is slowing, it remains in double digits, running at 12.6% year-on-year as of June, compared to the central bank’s target of 6%.
2. FX reserves are still insufficient to allow a complete removal of controls. Current reserves can't cover even two months of imports.

However, the comments from leading importers and import managers in the country highlighted a notable difference between this assessment and on-the-ground reality.

To note, imports rose by 3.2% to $63.29bn in FY24 compared to $61.33bn last year while exports surged by 9.7% to $38.9bn compared to $35.47bn the previous year.

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