KARACHI: Foreign banks are now demanding a 10 per cent commission to endorse letters of credit (LC) for importable consignments, banking insiders revealed on Saturday.

They said the move came as the country grapples with economic challenges, diminishing the confidence of global financial institutions in its banking system.

The rupee’s depreciation, coupled with foreign exchange reserves and debt servicing issues, has elevated the business risks associated with the country.

Letters of credit issued by Pakistani banks were no longer deemed credible by international exporters, banking professionals claimed, adding that such LCs required an endorsement from globally recognised foreign banks.

“Growing risks and deteriorating economic situation has weakened the country’s image abroad. The cost is too high, as foreign banks are now asking for 10pc as commission on each consignment,” a senior banker said.

He said foreign banks had been profiting significantly from endorsing domestic LCs for over a year now, as banks in Pakistan had generally lost credibility.

Pakistan lifted import restrictions after signing a $3 billion loan deal with the International Monetary Fund in June. However, observers said the IMF’s directives under the short-term agreement to liberalise imports and uphold a uniform currency exchange rate backfired, intensifying the country’s economic woes.

Imports have suffered twofold as foreign banks raised commissions and the dollar strengthened against the rupee, inflating import expenses.

This has been manifesting in several ways; for instance, the cost of imported fuel is surging due to the dollar’s appreciation, leading to increased energy prices and a subsequent inflationary impact on poor citizens.

Analysts believe that the interim government appears ill-equipped to navigate these intricate financial dilemmas, with political instability further complicating matters.

Moreover, the rampant smuggling of commodities such as dollars, wheat flour, sugar, and fuel, alongside widespread corruption, is leading to law-and-order challenges and has become a headache for the government.

The unregulated trade in foreign currencies has allowed the dollar’s open-market rate to soar by nearly 9pc above the banking rate.

This disparity far exceeds the IMF’s acceptable threshold of 1.25pc under the loan deal, posing potential complications for the country’s economic managers when they sit with the IMF team for the upcoming bailout review.

Published in Dawn, September 3rd, 2023

Follow Dawn Business on Twitter, LinkedIn, Instagram and Facebook for insights on business, finance and tech from Pakistan and across the world.

Opinion

Editorial

Smog hazard
Updated 05 Nov, 2024

Smog hazard

The catastrophe unfolding in Lahore is a product of authorities’ repeated failure to recognise environmental impact of rapid urbanisation.
Monetary policy
05 Nov, 2024

Monetary policy

IN an aggressive move, the State Bank on Monday reduced its key policy rate by a hefty 250bps to 15pc. This is the...
Cultural power
05 Nov, 2024

Cultural power

AS vital modes of communication, art and culture have the power to overcome social and international barriers....
Disregarding CCI
Updated 04 Nov, 2024

Disregarding CCI

The failure to regularly convene CCI meetings means that the process of democratic decision-making is falling apart.
Defeating TB
04 Nov, 2024

Defeating TB

CONSIDERING the fact that Pakistan has the fifth highest burden of tuberculosis in the world as per the World Health...
Ceasefire charade
Updated 04 Nov, 2024

Ceasefire charade

The US talks of peace, while simultaneously arming and funding their Israeli allies, are doomed to fail, and are little more than a charade.