Please spare us-SBP asks banks to meet import payments by borrowing from abroad

The State Bank of Pakistan (SBP) is reported to have recently been pushing some banks to raise money from the international markets for settling large import payments of its customers, a newspaper claimed on Friday. As opposed to the normal procedure where banks meet their payment obligations in foreign currency from the local inter-bank market, banks are allegedly being asked to either tap the international bond market or borrow from other foreign banks in order to preserve the already dwindling foreign exchange reserves of the country.

Analysts see it as a highly risky move that will expose the banks to exchange rate risks, if the banks do not pass on the risks to the importers, the report says.

SBP’s version

Under the existing foreign exchange regime in Pakistan, all foreign exchange inflows against commercial and non-commercial transactions such as exports, remittances, foreign investment are received in the interbank market, said Abid Qamar, the chief spokesperson of the central bank.

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He said that under Foreign Exchange regulations, the SBP is not required to provide foreign currency for such payments. Likewise, the authorised dealers are not required to surrender the foreign exchange to the State Bank, which they receive on account of exports, remittances etc.

The SBP occasionally intervenes in the foreign currency market, primarily with objectives to build its foreign exchange reserves and/or deal with excessive volatility in the interbank FX market, he added.

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