April 07, 2022 (MLN): In the wake of surging import bill, raging dollar demand and depleting foreign exchange reserves, the State Bank of Pakistan (SBP) has decided to impose a 100 percent cash margin on 177 imported products.
This firefighting measure will help discourage imports of these items and thus support the balance of payments.
Cash margins are the amount of money an importer has to deposit with its bank for initiating an import transaction, such as opening a letter of credit (LC), which could be up to the total value of the import. Cash margins essentially increase the cost of imports in terms of the opportunity cost of the amount deposited and thus discourage imports.
To recall, a 100 percent cash margin requirement was initially imposed, in 2017, on 404 items to discourage the import of largely non-essential and consumer goods. The list was further expanded in 2018. However, in order to enable businesses to absorb the shocks of the COVID19 pandemic, SBP provided relief by removing CMR on 116 items.
Later in September 2021, SBP had decided to adjust its policy by imposing Cash Margin Requirement on additional 114 import items to moderate the growth.
