The Head /Principal Offices of all
Authorised Dealers in Foreign Exchange

Dear Sirs/Madam

The State Bank of Pakistan remains committed to a liberal foreign exchange regime, but in recent months there have been instances of misuse of some of the facilities by certain market participants. An analysis of the market conditions has revealed that there are some loopholes in the existing instructions and guidelines which have to be plugged in. In order to further streamline the procedures, remove certain anomalies and to curb distortions often observed due to speculative activities, it has been decided to take the following measures for immediate implementation:

i) Cut-off Timings for FX Dealing by Banks’ Treasuries:
The Cut-off time for FX Dealing by all Bank Treasuries with their customers and in the inter-bank market shall henceforth be up to 12 noon during the month of Ramadan. After Ramadan, these timings would be extended up to 2:00 pm Monday through Thursday & 1:00 pm for Friday and Saturday.

ii) Settlement of FE-25 Loans for Exports:
In terms of EPD Circular Letter Nos. 5 and 9 dated 23.08.2002 and 12.11.2002 respectively, adjustment of FE-25 Loans against Exports Financing through the Inter-bank Market is allowed by the State Bank on a case to case basis, where realization of export proceeds is not expected either due to cancellation of the underlying contracts before shipment or circumstances leading to cancellation of export contracts after partial performance. Henceforth, all FE-25 Loans against intended exports shall only be settled through realization of export proceeds or remittances from abroad, in respect of all FE-25 loans for exports, maturing on or after November 02, 2004.

iii) Advance Payment Against Imports:
With reference to Paras 17(i) & (ii) and 30(i) of Chapter- XIII of FE Manual (8th Edition, 2002) concerning Advance Payment by the Importers through Authorized Dealers against L/Cs, Contracts, Performa invoices, etc., it has been decided that henceforth remittance of Advance Payments shall only be allowed to the extent of 50% of the estimated C & F value of the total quantity of goods intended to be imported, only against irrevocable letters of credit covering import of industrial capital goods; plant, machinery and equipment for manufacturing excluding spare parts.
Sub-paragraph (i) Para 17 of Chapter XIII of FE Manual (8th Edition 2002), therefore, may be amended accordingly.

Furthermore, sub-paragraph (i) Para 30 of Chapter XIII of FE Manual (8th Edition, 2002 may be replaced with the following Para:

“Authorized Dealers may consider applications for advance remittance against imports up to the extent of 50% of the estimated C & F value of the capital goods to be imported only against irrevocable Letters of Credit, covering import of industrial capital goods; plant, machinery and equipment for manufacturing, excluding spare parts. Applications for such advance remittance should be made to Authorized Dealer on Form “I” and should be accompanied by the original contract entered into between the importer and the foreign manufacturer or supplier and a copy of the irrevocable Letter of Credit. The applications should also be supported by an undertaking in the prescribed form (Appendix V-29) duly signed by the importer.”

iv) Forward Contracts:
Authorized dealers may provide forward booking only against letters of credit. Under no circumstances may the authorized dealers provide forward bookings against contracts etc. Relevant chapters / paras of the Foreign Exchange Manual referring to forward cover against contracts etc. therefore stand accordingly suspended till further instructions.

Please bring the above to the notice of all your constituents.