Pressure to repay debt, limited foreign exchange reserves, banks began to delay payment of import bills

Some large and small banks are delaying import-related payments by two to three weeks.

ISLAMABAD: Commercial banks have once again started delaying import payments due to limited availability of foreign exchange. Large foreign debt is due before the end of June and the International Monetary Fund’s condition of maintaining foreign exchange reserves in double digits has to be met.

According to background discussions with several bankers, this situation warrants the central bank to either completely stop buying foreign exchange from the markets or drastically reduce it to improve dollar supply.

The State Bank of Pakistan did not take any official stand on the issue on Saturday. Banking and market sources told The Express Tribune that some large and small banks are delaying import payments by two to three weeks.

Banks were also providing dollars to some large importers at higher than interbank rates for clearance of letters of credit. Due to this situation, the gap between the interbank and open market dollar prices has started widening.

Banking and currency market people say that the interbank rate was above Rs 282 per dollar while the dollar was getting around Rs 285 in the open market. A senior executive of a private bank has said that the situation is not much worse than the 2022 crisis and now is the time for the central bank to take notice to avoid speculation in the market.

The local currency came under pressure in both the open and interbank markets, the relevant officials said on condition of anonymity. But this is a temporary trend and will end soon. Pakistan State Oil and Pak Arab Refinery Limited are also facing problems in getting the right dollar price to pay for their imports.

Sources said that PSO paid about Rs 3 more for its latest import payment compared to the previous contract. This will increase the price of petrol for consumers. It is worth noting that Pakistan is scheduled to repay $ 2.4 billion in foreign trade loans to China next month.

Read more: Pakistan Petroleum Group’s import bill hits new record high

In addition, some other multilateral lenders also have to make payments. The foreign exchange reserves are currently at $11.5 billion. With foreign exchange reserves in double digits, these reserves are insufficient to meet payments. The IMF has further tightened its net international reserves (NIR) target for the end of June to negative $7.5 billion, a further tightening of $1.1 billion from the target set in September last year.

Another senior bank executive said that exports and remittances are sufficient to cover imports but the challenge was the financial account, which was putting pressure on the exchange rate. The central bank should not buy dollars for a few weeks to ease market conditions.

Central bank governor Ali Jamil had said a few months ago that the State Bank had bought more than $9 billion from the local market in 2024 to build reserves. The State Bank spokesperson also avoided answering a question about the reasons for the recent pressure on the rupee-dollar parity, as well as the delay of $1 billion due to deferred payments related to imports.