The State Bank of Pakistan (SBP) has eliminated all cash margin requirements for imports. The bank withdrew its “existing Cash Margin Requirement (CMR) on import of items with effect from March 31, 2023”, according to a circular from the Banking Policy and Regulations Department dated March 24. The move fulfills a condition set by the International Monetary Fund (IMF) to achieve a staff-level agreement. The SBP had introduced cash margins as a way to discourage imports by making them more expensive in terms of the opportunity cost of the amount deposited.
In 2017, the bank imposed a 100% cash margin on 404 items to deter the import of largely non-essential and consumer goods, with the list being further expanded in 2018. However, to help businesses weather the COVID-19 pandemic, the SBP had removed CMRs on 116 items. This latest decision repeals all six circulars, one each from 2017, 2018, 2021, and three from 2022, requiring cash margins for imports.
This move by the SBP comes at a crucial time as cash-strapped Pakistan is running out of time to implement measures to achieve a staff-level agreement with the IMF on the completion of the ninth review of a $7bn loan programme, which began in 2019.
The agreement will bring inflows from friendly countries and would result to a disbursement of $1.2bn. Furthermore, Pakistan’s foreign exchange reserves increased by $280 million to $4.6 billion during the week ending on March 17, driven by inflows from China, according to central bank data.