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EditorialCMR removal and IMF impasse

CMR removal and IMF impasse

The State Bank of Pakistan (SBP) fulfilled yet another condition to appease the International Monetary Fund (IMF) and get the tranche of the $6.5 billion loan released.

After the recent gaffes that must have surely annoyed the international lender, the government seems to be back on track, readily fulfilling another IMF condition which it has been doing for the last few months now.

However, will this pacify the IMF? From its latest statement, this might just not be enough. The IMF has now linked the bailout to assurances from Pakistan’s partners in financial assistance.

The State Bank, meanwhile, has withdrawn all cash margin requirements on imports. As per a circular, the SBP said it was removing the “existing Cash margin requirement (CMR) on import of items with effect from March 31, 2023”, hereby withdrawing its previous six circulars – one each from 2017, 2018, 2021 and three from 2022 – under which 100 per cent cash margin requirement was imposed.

Under the cash margin, importers had to deposit the total amount of the import transaction in the bank to open a letter of credit. Now, they would not be required to do so.

The government might have been emboldened after it received another instalment of $280 million from China, which has taken the foreign reserves to $4.6 billion.

A 100 per cent cash margin requirement had been imposed back in 2017 to discourage the import of non-essential and consumer goods. Initially, the requirement was enforced on 404 items; however, the list was expanded in 2018 and 131 items were added to it. When Covid-19 spread and affected businesses, the government relaxed the requirement by excluding 116 items.

In the 2022 circular, the State Bank imposed the 100 per cent cash margin requirement on 177 more items to curb imports, following which three telecom operators – Jazz, Telenor and Ufone – called on the State Bank of Pakistan to reverse the 100 per cent cash margin on telecom-related equipment, which the companies imported.

As a result, the government relaxed the condition, reducing the cash margin from 100 per cent to 25 per cent and even below.

In the next few months, Pakistan needs $6 billion to satisfy the IMF. The lender wants Pakistan to submit written assurances from friendly countries to meet the financing gap before the Fund releases a $1.2 billion instalment.

Finance Minister Ishaq Dar must be red-faced now. He had been assuring the nation that they would be hearing good news regarding the deal in a matter of weeks. Weeks have turned into months, but the deal seems to slip away with each passing day.

The government’s petrol subsidy announcement and then linking the delay in elections to an IMF condition damaged the hard work it had been doing for the last few months.

Time is ticking. Pakistan should now activate its diplomatic channels with friendly countries and get a written assurance. IMF is not budging anytime soon.

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