Pakistan's Central Bank Allows Exchange Companies to Import US Dollars to Address Liquidity Issues

Pakistan's central bank has taken a significant step to address the country's dollar-liquidity issues by allowing currency exchange companies to import 50 percent of dollars from abroad. This decision comes amidst the rapid depreciation of the Pakistani rupee, which has been on a losing streak in the last eight trading sessions due to increased demand for US dollars after the government lifted restrictions on the opening of Letters of Credit (LCs) to alleviate the shortage of dollar liquidity. The decision has been hailed as a step in the right direction by the Exchange Companies Association.

In an effort to bolster dollar liquidity and stabilize the currency, the State Bank of Pakistan (SBP) has updated its instructions for exchange companies regarding the import of dollars. According to the new guidelines, exchange companies can import cash US dollars against the value of their export consignments of permissible foreign currencies within five working days, using reputable cargo security companies. However, this arrangement will be valid until December 31, 2023, and comes with a condition that the total cash US dollars imported by an exchange company during this period should not exceed 50 percent of the value of its export consignments.

Chairman of the Exchange Companies Association of Pakistan (ECAP), Malik Bostan, emphasized the significance of this measure in improving dollar liquidity in the local market. He mentioned that despite inflows from Saudi Arabia, the United Arab Emirates, and the International Monetary Fund, the dollar exchange rate against the Pakistani rupee was increasing. However, with the central bank's move, the appreciation of the rupee against the greenback has already begun.

To ensure transparency and proper accounting, the SBP has directed exchange companies to include the import arrangement in their deals with overseas entities. They are also required to provide written intimation in advance before availing the option to import dollars. Additionally, all transactions related to the import of US dollars must be accurately recorded in the companies' books of accounts.

Bostan expressed optimism that this step would not only address the dollar crisis but also have a positive impact on the value of the national currency in the days to come. As a result of this measure, the sale of dollars has decreased significantly, and he foresees the demand to further decline in the future. This move by the central bank is seen as a crucial effort to stabilize Pakistan's financial situation and alleviate the ongoing currency depreciation and liquidity challenges.