Dawn reported on Thursday that banks were asked to allow about 25 percent higher imports, but they must arrange dollars before opening letters of credit (LCs).

Dollar arrangements have changed. Due to the non-availability of dollars, the State Bank of Pakistan (SBP) has asked banks to arrange dollars before opening Letters of Credit (LCs).

The previous system of importers arranging dollars for opening LCs to import raw materials simplified the situation for industries, but it also strengthened the black market for dollars.

As importers began purchasing greenbacks from the grey market at higher prices, up to Rs20-25 per dollar, the rate gap between the open and interbank markets widened. As a result, remittances declined and export proceeds were sold on the grey market or held for higher rates.

Although imports declined by 31 percent year-on-year, the trade deficit in FY23 was $27.55 billion.

According to sources in the financial sector, banks cannot improve their dollar reserves, which means imports will remain restricted. Upon approval of the $3bn Stand-By Arrangement by the IMF board this month, the central bank’s reserves may improve.

As a result of abolition of the essential and non-essential import criteria, the SBP has relaxed import restrictions. Pharmaceuticals, for example, are heavily reliant on imported raw materials.

The SBP’s reserves have increased

As of June 30, the SBP’s foreign exchange reserves rose. A half-billion dollar increase in reserves was recorded over the previous week.

The SBP reserves increased by $393 million to $4.462 billion during the week ended June 30, mainly due to official inflows from the GoP.

A total of $9.745 billion was held by the country in liquid foreign reserves, including $5.282 billion held by the commercial banks.

At the same time, the US dollar slightly depreciated against the rupee by 37 paise, closing at Rs277.04 versus Rs277.41 the previous day.

Greenbacks lost Re1 on the open market to settle at Rs280.