Pakistani and Chinese businesses free to choose the yuan for bilateral trade and investment

A Pakistani currency dealer counts Chinese currency for a customer in Quetta. Pakistan will allow the Chinese yuan to be used for imports, exports and financing transactions for bilateral trade and investment activities, in a move economists said would simplify a massive Chinese investment project. (AFP)
Updated 04 January 2018
0

Pakistani and Chinese businesses free to choose the yuan for bilateral trade and investment

KARACHI: State Bank of Pakistan (SBP) has taken steps to ensure that imports, exports and financing transactions can be denominated in Chinese Yuan (CNY).
Both public and private-sector enterprises in Pakistan and China are free to choose CNY for bilateral trade and investment activities, the country’s central bank announced on Tuesday.
Chinese yuan, under current foreign exchange regulations, is an approved foreign currency for denominating foreign currency transactions in Pakistan.
The SBP has already put in place the required regulatory framework which facilitates use of CNY in trade and investment transactions such as the opening of letter of credits (l/cs) and availing financing facilities in CNY.
In terms of regulations in Pakistan, CNY is on a par with other international currencies such as the US dollar, euro, and Japanese yen, the spokesman of SBP said.
After signing the currency swap agreement (CSA) with People’s Bank of China (PBoC), the SBP had taken a series of steps to promote use of CNY in Pakistan for bilateral trade and investment with China. The SBP allowed banks to accept CNY deposits and give CNY trade loans.
The central bank said that the Industrial and Commercial Bank of China Limited (ICBC) Pakistan has been allowed to establish a local CNY settlement and clearing setup in Pakistan enabling it to open CNY accounts of the banks operating in Pakistan and to facilitate settlement of CNY based transactions such as remittance to and from China. With the opening of Bank of China in Pakistan, the access to onshore Chinese markets will strengthen further. Apart from the above, several banks in Pakistan maintain onshore CNY nostro accounts.
The central bank had permitted authorized dealers to open foreign currency accounts and extend trade loans under the FE-25 scheme in US dollars, pound sterling, euros, Japans yen, Canadian dollars, UAE dirhams, Saudi riyals, Chinese yuan, Swiss francs and Turkish lira.
According to the spokesman, for onward lending the proceeds of currency swap agreement, the SBP has put in place a loan mechanism for banks to get the CNY financing from SBP for onward lending to importers and exporters having underlying trade transactions denominated in CNY.
The currency swap arrangement was executed between State Bank of Pakistan and People’s Bank of China (PBoC) on Dec. 31, 2011. The central bank had explained the modus operandi of this liquidity facility for banks.
The bank through a circular had allowed all authorized dealers to take foreign exchange deposits and extend loans in CNY for financing of imports and exports in accordance with prevailing instructions on loans and deposits. In order to provide CNY funding to scheduled banks, so that they can lend CNY to importers and exporters with underlying trade documents in CNY, the SBP will conduct competitive auctions of Chinese yuan loan facility using proceeds of the currency swap arrangement with the PBoC.
Considering the recent local and global economic developments, particularly with the growing size of trade and investment with China under the China\Pakistan economic corridor (CPEC), the SBP foresees that CNY denominated trade with China will increase significantly and yield long term benefits for both countries.


Pakistan PM Khan expected to boost aid and trade from visit to Kingdom

Updated 18 September 2018
0

Pakistan PM Khan expected to boost aid and trade from visit to Kingdom

  • Pakistan imports more than $13 billion of oil
  • Agriculture expected to be key focus

KARACHI: Faced with a financial crisis at home, Pakistan Prime Minister Imran Khan’s first visit to Saudi Arabia could provide a much needed boost to the country’s political and economic confidence, experts said on Tuesday.
The trip, which began on Tuesday, holds even more significance as Khan is expected to seek $2-$3 billion in economic aid from the Kingdom, with an urgent need to inject around $9 billion into the economy — to stabilize external accounts largely inflated from high imports and insufficient exports.
“Pakistan expects an injection of around $2 billion to $3 billion in order to stabilize its foreign reserves position, currency and external balance sheet,” Dr. Bilal Ahmed, senior economic analyst, told Arab News.
He added that Pakistan would largely benefit from the visit, especially if the Kingdom is convinced “to supply oil at concessionary rates which would mitigate pressure on the import bill to a large extent.”
During the last fiscal year, 2017-18, the country’s imports of petroleum stood at $13.27 billion, imported from different countries, including Saudi Arabia. “If Pakistan gets the oil at a deferred payment or at relaxed conditions the issue of the country’s cash will be resolved,” Syed Mazhar Ali Nasir, Senior Vice President of the Federation of Pakistan Chambers of Commerce and Industry — an apex body of Pakistan’s industrialists and traders — told Arab News.
Bilateral trade will be another key area of focus.
“We should explore avenues for exports to Saudi Arabia by ending tariff and non-tariff barriers that have decreased the trade of goods and services,” Dr. Ikram ul Haq, a senior economist and expert in legal matters, said.
Despite holding great potential, bilateral trade between Pakistan and Saudi Arabia is only $3.4 billion and largely in favor of Saudi Arabia.
Pakistan imported $3.1 billion worth of goods from the Kingdom during the fiscal year 2017-18, while exports stood at $316.7 million, data shared by the State Bank of Pakistan showed.
Suggesting new means to explore bilateral trade and investment — by relying less on traditional goods and services – Dr. Haq said: “Pakistan should try to win Saudi contracts for IT services as this is the area where we have potential to earn foreign exchange but we never tried. We must come out of traditional items like textile.”
Agriculture is another sector that Pakistan could tap into to seek Saudi investment through joint ventures, Dr. Haq said: “This area has potential to grow fast and create export surplus. Saudis investors can be lured for modern corporate farming in Pakistan to earn substantial profits.”