Pakistan is confronting a continued shortage of key imports like food and fuel as its reserves of US dollars fall and banks remain wary of providing letters of credit (LCs).

Spikes in inflation and rising commodity prices have put further pressure on the country, which became increasingly dependent on food imports after crops were devastated by flooding last summer.

The agriculture sector sustained more than US$9bn in losses, according to the Food and Agriculture Organization of the United Nations.

The State Bank of Pakistan (SBP) had previously introduced import restrictions to reduce the outflow of dollars from its reserves, but removed these constraints in early January and encouraged importers to prioritise essentials like food, fertiliser, pharmaceuticals and energy instead.

The move came after industry leaders called on the government to smooth restrictions for LCs. National media reported that the Oil Companies Advisory Council had already raised concerns about the impact of delayed LCs on the import of petroleum products, and that Pakistan’s textile industry was also struggling to acquire raw materials after the cotton crop was largely destroyed by flooding.

Zulfikar Thaver, president of the Union of Small and Medium Enterprises (Unisame), tells GTR in a statement that foreign currency had been wasted on non-essential and luxury items, with the result that “the SBP had to curb imports and is now only allowing the bare necessities”.

The restrictions and resulting delays in LCs being provided has also led to goods being held in shipping containers, unable to be offloaded.

In a January 23 statement, the SBP acknowledged that goods had become stuck in ports due to delays in banks releasing shipping documents and advised banks “to provide a one-time facilitation to all those importers who could either extend their payment terms to 180 days (or beyond) or arrange funds from abroad to settle their pending import payments”.

The SBP says that banks should process and release documents for goods that are either already in ports or have been shipped on or before January 18 until March 31.

Pakistan’s government is currently in talks with the International Monetary Fund (IMF) to agree the release of further funds that will relieve the crisis, but there is ongoing dispute over the terms of the agreement.

“We have asked for a suppliers credit facility from China and hopefully the situation may improve somewhat,” Thaver says. “Containers already imported and lying at port are being released or cleared. All contracts are being renegotiated and credit limits are being extended and revised.”

Thaver adds that the SBP’s measures to curb imports may last until exports increase and help comes from the IMF. Until then, he says that all imports will be “tailored”, with further depreciation of the rupee likely.

One trader tells GTR that his business is being impacted drastically as the country faces a “catastrophic economic disaster”, with the entire supply chain being disrupted from the border to the end user.

“Import and export are like the warp and weft of an economy,” Thraver says, adding that Pakistan currently lacks adequate political and trade leadership and has so far not focused on industrialisation to the extent that it should have done.