State Bank Mulling Opening LCs As Reserves Expected To Improve

State Bank Mulling Opening LCs As Reserves Expected To Improve
Sources report that the State Bank of Pakistan (SBP) will gradually start to release LCs payments, as the government is expecting foreign exchange reserves to increase in the coming days when loans from friendly countries might start to materialize. Many are calling it a belated attempt to revive economic activity and control inflationary trends.

The federal government is likely to lift curbs on the opening of letters of credit (LCs) as the country’s foreign exchange reserves improve. Doing so would give a much needed boost to the indebted economy, as Pakistan is reeling from dollar shortage, capital flight, investor hesitancy, and a recent hike of 300 basis points in the interest rate.

According to latest State Bank (SBP) data, the foreign currency reserves held by the central bank stood at $3.814 billion, a precariously low figure for the indebted South Asian country. Overall liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $9.267 billion.

Sources are optimistic that the central bank could start opening LCs — with pending LC cases worth nearly $400 million already — in the coming days. This would facilitate trade and revive economic interactions.

Addressing a press conference yesterday (Friday), finance minister Ishaq Dar said that he expected the reserves held by the central bank to reach $10 billion by the end of June.

He also announced that Pakistan is likely to receive around $1.3 billion from the Industrial and Commercial Bank of China (ICBC). Pakistan would receive the first tranche of $500 million in the next few working days, with another tranche of $500 million expected in the next ten days. Sometime thereafter, the remaining amount of $300 million will also be transferred.