Commercial banks in Pakistan are delaying import-related payments due to a dollar shortage, driven by looming foreign debt repayments and conditions set by the International Monetary Fund (IMF) regarding foreign exchange reserves.
Import payments under open accounts and contractual arrangements are reportedly being deferred by two to three weeks. Banks are also processing letters of credit (LCs) at rates higher than the official interbank rate.
As of Friday, May 30, the rupee’s open market rate approached Rs. 285 per US dollar. The shortage is primarily linked to Pakistan’s obligation to repay $2.4 billion in commercial debt by the end of June, with the bulk of payments owed to China and other multilateral creditors.
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To meet the IMF’s net international reserves (NIR) target of negative $7.5 billion by the end of June, the State Bank of Pakistan (SBP) has continued its dollar-buying operations from the open market. This effort has further limited the availability of foreign currency for importers. The NIR stood at negative $10.2 billion at the end of March, requiring an improvement of $2.7 billion in the current quarter.
Major importers such as Pakistan State Oil (PSO) and Pak-Arab Refinery Company (PARCO) have reportedly paid up to Rs. 3 more per dollar in recent transactions, a development that may contribute to higher fuel prices in the coming weeks.
Despite stable inflows from exports and remittances, the dollar demand from the financial account has maintained upward pressure on the currency. Bankers have called on the SBP to temporarily halt its market purchases of dollars to ease the situation.
The shortage has been further exacerbated by a seasonal increase in demand related to Hajj, although this is expected to subside shortly.
During the first nine months of FY2024, the SBP purchased over $9 billion from the market and reduced external debt by $800 million. However, exporters have warned that ongoing restrictions on the exchange rate are negatively impacting Pakistan’s global trade competitiveness.
