Late export proceeds to be fined up to 9%

Pakistan’s central bank has issued new regulations to tighten the process of repatriating export earnings into the country. Under the new rules, exporters who delay bringing their export earnings into the country will face fines of up to 9% of their realised export proceeds. The fines will be imposed if export proceeds are realised fully or partially after the prescribed period of up to 180 days, or earlier in some cases.

Exporters often delay receipt of payments from their global buyers in anticipation of a better rupee-dollar exchange rate, creating an artificial shortage of US dollars in the domestic economy and triggering depreciation in the local currency. Such delays also reduce the supply of US dollars in the economy, causing unnecessary rupee depreciation against the greenback. Pakistan, which is already managing with critically low foreign exchange reserves and a high risk of default on foreign debt repayments, cannot afford such delays.

According to a notification released by the State Bank of Pakistan (SBP) on Friday, in the case where export proceeds are realised (fully or partially) after the prescribed period (a maximum 180 days in majority cases or earlier), authorised dealers (mostly commercial banks) will convert the export proceeds at the prevailing market exchange rate and credit the same into the exporters’ account. They will also mark a 3% lien on the amount of export proceeds delayed by up to 30 days, 6% on realisation of export proceeds delayed by more than 30 days to a maximum of 60 days, and 9% on export payment received with a delay of more than 60 days.

The instructions will be applicable with immediate effect, and the fines will be deposited with the SBP. However, the instructions will not be applicable in case of export bills/export receivables discounted by the exporters to the authorised dealers.

“(Moreover), in view of the representation received from various stakeholders, it has been decided that exporter who are able to bring their delayed export proceeds to Pakistan by April 30, 2023, will not face any deductions and their export proceeds will be converted into rupees and released to them in a normal fashion,” reads the notification.

The central bank also instructed the authorised dealers to release to exporters the amount withheld, deducted early under the previous regulations made on February 13, 2023. “The amounts withheld by the ADS in pursuance of… (previous) instructions will also be released to the exporters,” read the central bank’s notification.

The notification further added that the Foreign Exchange Operations Department (FEOD) shall file a complaint to Foreign Exchange Adjudication Department (FEAD) of the SBP with respect to a delay in the realisation of export proceeds for all reported cases.

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“Subsequently, AD shall deposit the fine as ordered by FEAD with the SBP out of the amount marked under lien… and release the remaining amount to the exporter. In case the FEAD does not impose any fine on the exporter, the entire amount under lien will be released to the exporter.”

The Foreign Exchange Manual 2002 and a concerned circular elaborated that “exporters are now required to repatriate the export proceeds on the due date for payment or within six months from the date of shipment, whichever is earlier.”

In some cases, however, like the export of carpets or exports to South American countries, the proceeds may be received within 285 days.

Speaking to the Express Tribune Pak-Kuwait Investment Company, Head of Research Samiullah Tariq said that the aim of the latest amendments in the Foreign Exchange Manual is to bring in the export proceeds to the country in a timely manner and better manage the foreign exchange reserves.

“Sometimes, exporters take a view that the rupee may be depreciated further and hence delay receipt of export proceeds,” he said. The rupee’s depreciation always suits exporters, as this fetches them a higher amount in rupee value.

In the past two months, the rupee has devalued by 19% or Rs54 to around Rs284 against the greenback in the interbank market.

Pakistan’s foreign exchange reserves have dropped by $354 million to $2.24 billion in the week ended on March 24, 2023. The reserves are barely enough to finance exports for around a month. Low reserves have resulted in cutting imports by almost half at $4 billion a month and partially shutting down the domestic economy.

The country is in talks with the International Monetary Fund (IMF) to resume its $6.5 billion loan program, which has been stalled since November 2022. The last condition for reviving the program is acquiring guarantees of financial commitment worth around $6-7 billion from friendly countries.

The central bank has fully reopened imports on the recommendation of the IMF last week. These new regulations are expected to ensure the timely receipt of export proceeds into the country and better management of foreign exchange reserves, crucial for the country’s economic stability.

Published in The Express Tribune, April 1^st, 2023.

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