KARACHI: Multina-tio-nal companies operating in Pakistan have demanded a reduction in the requirem-ent of 100 per cent cash margin against the import of raw materials.

       In a recent letter to State Bank of Pakistan (SBP) Governor Reza Baqir, the representative body of overseas investors said the reduction in the rate of cash margin will increase exports.

       A 100pc cash margin requ-irement means an importer has to deposit the total amo-unt of a transaction value in a bank before the opening of a letter of credit. Govern-ments facing balance-of-payments issue increase cash margin requirements to discourage imports and save foreign exchange.

       The increased cash margin condition was initially imposed in 2017 and 2018 to restrict imports and curb the widening trade deficit. With the beginning of Covid-19 in 2020, the SBP eased the 100pc cash margin requirement on the import of some raw materials to give a brea-ther to the industrial sector.

       In its letter, the Overseas Investors Chamber of Com-m-erce and Industry (OICCI) also demanded that the central bank should enhance the limits of the Export Refinance Facility (ERF), which are targeted loans to support exports and industrial growth. Credit offtake by the private sector jumped more than five times in the first half of 2021-22 on a yearly basis, but central bank data shows more than a quarter of it is owing to subsidised loans under schemes like the ERF and Temporary Economic Refinance Facili--ty, which provided busines-ses with low-cost funds during the pandemic.

       According to the second edition of the OICCI’s Remit-tance Survey, which was conducted in December 2021, multinationals reported that a majority of outward remittances were now being approved within three months.

       Published in Dawn, January 12th, 2022