SBP withdraws prior approval requirement for imports

ISLAMABAD: The State Bank of Pakistan (SBP) on Monday eased some of the restrictions imposed on imports following months-long backlash, withdrawing the requirement of prior approval of imports.

The SBP directed banks to prioritise the import of certain essential items like food, pharmaceutical and energy products. “In order to facilitate businesses, State Bank of Pakistan withdrew the requirement of prior approval of imports (falling under HS code Chapters, 84, 85 and certain items under HS code Chapter 87),” a statement released by the central bank read.

“[...] instead [SBP] gave a general guide to the banks to prioritise import of certain essential items like food, pharmaceutical, energy, etc,” the statement added.The SBP imposed restrictions on imports in May last year following which several importers and industrialists cited these curbs as the reason behind shutting down or scaling back operations.

The business community also severely criticised the role of the SBP in the crisis with regard to difficulty in opening letters of credit (LCs). The criticism deepened last week when the stakeholders lambasted SBP Governor Jameel Ahmad took notice of the global economic and financial conditions broadly remaining uncertain in the near-to-short term, leading to mixed implications for the domestic economy.

The central bank further elaborated that the expected slowdown in global demand could negatively impact the outlook of exports and workers’ remittances for emerging economies, including Pakistan. “This would partly offset the gains from the import contraction. On the flip side, some moderation in international commodity prices may help reduce inflation and the improvement in global financial conditions may also provide some relief to the external sector,” he said.

The statutory committee reiterated its November 2022 assessment that the short-term costs of bringing down inflation are lower than the long-term costs of allowing it to become entrenched.It also emphasised the engagements with the multilateral and bilateral partners to overcome domestic uncertainty and to address the near-term external sector challenges.

In this regard, the MPC viewed the completion of the pending ninth review under the IMF’s External Fund Facility (EFF) as “critical for reducing uncertainty” and unlocking multilateral and bilateral inflows.

In its forward guidance, the MPC emphasised anchoring of inflation expectations was important to achieve medium-term inflation target of 5-7 per cent by December 2024 and “requires coordinated monetary and fiscal policy efforts.”

The statement mentioned that the broad money growth decelerated in the first half (July-December) of the fiscal year 2022-23, “primarily reflecting the stress on the external account”. On the other hand, domestic credit expanded owing to a seasonal rise in private sector credit along with increased budgetary borrowing because of reduced external financing.

“The disaggregated analysis of private sector credit shows retirement in consumer finance and moderation in working capital and fixed investment loans.”Regarding inflation outlook, the uncertainty on their future path and expected near-term adjustments remain the major upside risks to the inflation outlook.

“Reflecting these concerns, both the consumer and business inflation expectations have drifted upwards over the short and medium term in latest pulse surveys,” the statement mentioned.