Tag Archives: Minister for Planning and Development Ahsan Iqbal

Door open to yuan-based trade with China: SBP

on 30/01/2018

Dec 19, 2017, Minister for Planning and Development Ahsan Iqbal said that the government was considering a Chinese proposal to use renminbi (RMB or yuan) instead of the US dollar for payments in all bilateral trade between China and Pakistan.The decision was taken after rejecting a Chinese proposal to allow yuan as legal tender in Gwadar, Balochistan.

`The SBP, in the capacity of the policy maker of financial and currency markets, has taken comprehensive policy related measures to ensure that imports, exports and financing transactions can be denominated in yuan,` said a statement issued by the SBP. It further said both public and private sector enterprises (ie both Pakistanis and Chinese) are free to choose yuan for bilateral trade and investment activities.

The RMB is an approved currency for denominating foreign currency transactions in Pakistan. The SBP has already put in place the required regulatory framework which facilitates use of yuan in trade and investment transactions such as opening of letter of credits (LCs) and availing financing facilities in yuan.

In terms of regulations in Pakistan, yuan is on a par with other international currencies such as dollar, euro and Japanese yen, etc. In FY17, Pakistan exported goods and services worth $1.62 billion while the imports from China were $10.57bn reflecting a great imbalance.

The two countries have yet not chnalised a free trade agreement (FTA). The FTA may benefit exports from Pakistan as the country critically needs to improve its exports due to huge trade deficits. After signing a Currency Swap Agreement (CSA) with People`s Bank of China (PBoC) in 2012,

SBP had taken a series of steps to promote use of yuan in Pakistan for bilateral trade and investment with China. The central bank has allowed banks to accept deposits and give trade loans in yuan. For onward lending the proceeds of CSA, the SBP has put in place the loan mechanism for banks to get the yuan financing from the SBP for onward lending to importers and exporters having underlying trade transactions denominated in the Chinese currency.

In 2012, the SBP issued a circular that said the authorised dealers may open for-foreign currency accounts and extend trade loans under FE-25 Scheme in US dollar, pound sterling, euro, Japanese yen, Canadian dollar, UAE dirham, Saudi riyal, Chinese yuan, Swiss franc and Turkish lira. Industrial and Commercial Bank of China Ltd (ICBC) Pakistan has been allowed to establish a local yuan settlement and clearing setup in Pakistan enabling it to open yuan accounts of the Chinese banks operating in Pakistan and to facilitate settlement of yuan-based transactions such as remittance to/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 yuan nostro accounts, said the SBP.  Considering the recent local and global economic developments, particularly with the growing size of trade and investment with China under CPEC, the Bank foresees that yuan denominated trade with China will increase significantly and will yield long term benefits for both the countries. When asked, the SBP spokesman said the statement on yuan was issued due to many queries from media about the use of the currency for bilateral trade. He said it seemed there was confusion about the use of yuan for bilateral trade which was clarified with this detailed statement.

Why Pakistan refuses ADB loan for Railway ?

on 09/05/2017

Pakistan has refused part financing from the Asian Development Bank (ADB) for the $8 billion Karachi-Peshawar Railway Line (ML-1) after China said it wanted to fund the project single-handedly. `China strongly argued that two sourced financing would create problems and the project would suffer, Minister for Planning and Development Ahsan Iqbal has revealed. The minister said he would not comment whether the Ministry of Railways has resisted the Chinese request for fears of monopoly, but said the entire financing would now come from China. The project was originally planned to be partly funded by the Manila-based ADB. He said ADB would be accommodated in some other projects, such as those under the Central Asian Regional Economic Cooperation programme. Under the original plan, ADB had to provide $3.5bn for the 1,700-kilometre-long line considered the backbone of the country`s logistics connecting two major ports with the rest of the country for transporting goods and passengers. The minister said Chinese government therefore wanted that the project financing should be kept single-sourced. Pakistan and China are expected to sign a formal agreement in this regard next month. Iqbal said the Planning Commission was making efforts to maximise allocation of funds for the next year`s development programme as it would be the final year of the current government. Therefore, the government would like to complete maximum number of projects during this period so as to support the growth momentum. He said it was also important to have larger development portfolio for the next year because it would trigger activity in the construction industry on which a number of other growth oriented industries were dependent because of its potential to create jobs.