Circulars/Notifications - Exchange Policy Department  
 FE Circular No. 03 of 2008

April 29, 2008

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

Dear Sir/ Madam,

State Bank of Pakistan is taking the following measures with immediate effect in order to streamline the foreign exchange markets:

1) Advance Payment against Imports
a) Attention of the Authorized Dealers is invited to FE Circular No.04 dated September 13, 2007 in terms of which importers were allowed to effect advance payment against irrevocable letters of credit and firm registered contracts up to 100% of the FOB or CFR value of the goods subject to the terms and conditions mentioned therein. It has now been decided that the said facility will be available only against irrevocable letters of credit and to the extent of 50% of the FOB or CFR value of the goods. In case importers desire to make advance payments up to a maximum of 50% of the FOB or CFR value of the goods against registered contract, they will have to provide bank guarantee from the bank of supplier abroad for the amount of advance payment and will have to approach Exchange Policy Department, SBP on a case-to-case basis with the rationale of the advance payment to be made. Further, the penalty rate mentioned in para d) of the above referred FE Circular has been enhanced from 0.25% to 0.50%. All other terms and conditions of FE Circular No.04 dated September 13, 2007 would remain unchanged.

b) Authorized Dealers may also note that the advance payment facility up to US$10,000/-, or equivalent thereof in other foreign currencies, per invoice for import of eligible items as allowed vide FE Circular No.12, dated August 2005 will now remain available to the importers only against import of spare parts/raw materials by manufacturing and industrial users for their own use without requirement of L/C or bank guarantee. In case of cancellation of an import transaction against which advance payment has been affected, the punitive action/mechanism provided in FE Circular No.04 dated September 13, 2007 alongwith above amendments will also be applicable on all such transactions. All other terms and conditions of the FE Circular 12, dated August 2005 would remain unchanged.

2. Tenor of Forward Cover Facility

Attention of Authorized Dealers is invited to Para - 4 of FE Circular No. 24 of December 31, 2002, in terms of which forward cover facility for a tenor of less than one month was allowed. It has now been decided that henceforth Authorized Dealers will be allowed to provide forward cover facility against imports on L/C basis for a period not less than one month and up to a maximum period of one year on rollover basis subject to observance of all other related rules and regulations. Furthermore, close out of any forward contract cannot happen within one month of its booking. In case payment has to be made against letter of credit within one month of the forward contract, the prevailing spot selling rate will be applied and the relevant forward contract will be closed out at the end of one –month from the booking date. All other instructions in this respect would remain unchanged.

Authorized Dealers are advised to bring the above to the notice of their constituents, for strict compliance.

Yours faithfully,

(Syed Samar Hasnain)

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