The step seen discouraging imports, supporting balance of payments
The central bank has imposed 100% cash margin requirement (CMR) on import of 114 items, bringing the total to 525.
A circular issued by the State Bank of Pakistan (SBP) stated that the central bank had taken the measure to discourage imports and support the balance of payments.
This is the second such step within a few days. Earlier, the SBP had revised its prudential regulations for Consumer Financing, prohibiting financing for imported vehicles.
Cash margin is the amount an importer has to deposit with banks for initiating an import transaction, such as opening a letter of credit (LC), which could be as much as the total value of import. Basically, cash margins increase the cost of imports thereby discouraging imports.
The 100% cash margin requirement was initially imposed in 2017 on 404 items to discourage the import of non-essential and consumer goods. The list was further expanded in 2018. However, the central bank provided relief by removing CMR on 116 items, enabling businesses to absorb the shocks of coronavirus pandemic.
After the recovery in domestic economic growth gained momentum, the SBP adjusted its policy by imposing cash margin requirement on 114 more import items. This move is likely to ease the pressure of import bill and help contain the current account deficit at sustainable levels.