The SBP has imposed restrictions on imports because of a shortage of dollars a month after the present regime assumed office. It has now removed these on machinery, cars, mobile phones, and some other imports despite higher dollar shortages.
One fails to understand how commercial banks can arrange dollars for the opening of these letters of credit. The central bank would not supply them with dollars, they would have to arrange it through importers from the open market. There is a difference of Rs.10 between the open market and inter-bank rate. The gap would further increase and the official rupee value would come under further pressure.
This seems to be an attempt on the part of the SBP to pass the buck to the commercial banks and ease pressure on itself. The situation would practically remain the same until we shore up our reserves substantially. This is also an attempt to pacify the IMF which has been demanding the withdrawal of restrictions. Though realistically speaking the IMF has got no moral right to demand such actions knowing well our precarious foreign exchange situation. A free import regime would accelerate the chances of default as we would run out of foreign exchange needed to service our foreign debt and import liabilities.
Many experts might disagree with the SBP restrictions but can they suggest any alternative? For more than four years we have been maintaining our reserves on six monthly additions of about $3 billion loans. These loans were consumed for six months and we somehow arranged another $3 billion again for consumptive purposes. The import of textile raw materials and machinery was also funded from these regular replenishments of dollars. With time, these short-term loans became very expensive and finally dried.
SBP is still opening all imports of chapters 84, 85, and 87. This does not make sense. There is more to it than what meets the eye. Importers realize that the SBP move is only for lip service; they foresee more chaos the dirty job of restricting imports is transferred to the banks. Bankers admit they don’t have any dollars, but now they would face the music from their clients instead of SBP. This does not augur well for the banking sector.
After the imposition of import restrictions a dedicated central bank headed by a Deputy Governor has relentlessly been dealing with importers on opening their respective L/Cs. Virtually every importer used to call them on phone and in person regularly. In some cases, they saw justification and relaxed the restriction. But this window is now closed. The importers would have to go to the banks that do not have any power or dollars available. This will create bitterness between the banks and their clients.
There is no way these imports could be normalized without hefty inflows of dollars, as SBP reserves are not enough to cover even a month of normal-pace imports. And the actual restrictions are just growing. The textile sector somehow managed to get permissions for the import of raw materials like cotton and accessories but they were hardly facilitated in the case of the import of machinery. The situation would remain the same or even worsen as the forex reserves have depleted to below $6 billion, hardly enough to finance our five weeks of imports if we stop all other foreign payments.
The textile sector would sail in the same boat as other importing sectors until the expected foreign inflows materialize that are linked to the resumption of the IMF program and the release of withheld tranches by the Bretton Woods institution.
Let us face the reality that we are in a scary situation. If the inflows are not immediately arranged we may be forced to ration even essential exports. The textile issue would be on the back burner. Let us hope for the best and be prepared for the worst.
