KARACHI: The State Bank has restored advance payment facility (up to $10000) for importers without requirement of letters of credit or bank guarantee.

In a circular to all banks on Wednesday, it said that in order to facilitate importers to cater to their genuine small import needs, “it has been decided to restore the advance payment facility up to $10000 per invoice for import of all eligible items without requirement of letters of credit or bank guarantee.”

In April 2008, the State Bank had restricted advance payment against import invoices to specific goods or sectors only.

It seems that the step has been taken in view of growing foreign exchange reserves of the country, but it has the risk of further increasing the import bill causing widening of trade imbalances.

The Central Bank has put some condition to avail this facility provided after a gap of seven years.

“The bank will take all possible measures to verify the bonafides of the importer and genuineness of the transaction while processing the advance payment request,” said the circular.

The bank will obtain an undertaking from the importer that in case goods are not received within a period of four months for any reason, the bank will recover a penalty at the rate of 1pc per month or part on the amount of advance payment from the date of remittance till the date of submission of shipping documents or repatriation of advance payment.

The bank will deposit the penalty amount to the SBP on a quarterly basis along with a report on prescribed format, said the SBP.

In case goods cannot be imported for any reason within the prescribed time, the bank and the importer will ensure repatriation of advance payment back.

“If a consistent behaviour is observed on part of an importer who is unable to import goods against advance payment within four months, the bank may debar the concerned importer from making any future advance payment,” said the State Bank.

The decision is believed to have been taken in the wake of rising foreign exchange reserves (mostly because of inflows from the donor agencies, but in the presence of current account deficit and increasing imports, it could further soar the import bill.

Despite higher reserves (about $16.3bn) and positive comments from Moody’s and IMF, the exchange rate is under pressure from the US dollar. Since the last week of December, the dollar has been gaining against the rupee.

Currency dealers in the inter-bank market said the exchange rate has been walking on a tight rope while the State Bank has been influencing the market to keep dollar below Rs102. Since last week of December, the dollar gained Rs1.60 against the local currency.

The dollar’s increasing potential to gain more is visible in the open market where the currency was traded at Rs102.60 on Wednesday.

Analysts believe that the restored facility of $10,000 could be grossly misused and that could be turned into a problem for the government instead of a solution.

Published in Dawn, April 9th, 2015

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