Monetary Policy #11 : SBP’s misguided import compression: Part Deux
SBP’s cash margin requirement are detrimental to telecom coverage and IT export potential of Pakistan
This post is written on iPhone so the usual disclaimer about typos
This is a short post where I take the victory lap. SBP had issued two lists, one comprising 114 items in September 2021 and the next comprising 177 items in early April 2022. I have published posts criticizing the ham handed approach that SBP is taking but no one takes the author seriously despite the fact that I make a lot of sense (at least in my opinion).
In my post, fools in the shower, I wrote that SBP is doing this for PR purposes as items in September list comprise less than 2% of Pakistan’s import bill. About the April list, I wrote a post titled misguided import compression where I noted that while the items comprised 12.5% of Pakistan’s import bill, around 95% if the items by volume are industrial, medicinal and staple food. By including daal in the list, I commented اسٹیٹ بنک نے غریب کے منہ سے دال کا نوالہ بھی چھین لیا. These aren’t luxury items and SBP is being amateurish by including these items in the list.
But it was as if I was shouting into a void.
Thankfully, Pakistan Telecommunications Authority has noticed that the April 2022 100% cash margin circular is detrimental to the progress of the country. Ministry of Information Technology and Telecom even wrote a letter to SBP explaining how these items aren’t luxury items and imposing such margins and detrimental to network coverage, investor confidence and IT export potential.
SBP regulations to adversely impact telecom industry
The Pakistan Telecommunication Authority (PTA) has raised serious concerns about the recent SBP regulation whereby the banks are directed to obtain a 100 per cent cash margin on importing almost all the telecom equipment and mobile handsets, including power equipment, lithium battery, SIM card, memory card, servers, routers, main telecom equipment/parts, cellular mobiles phones, etc.
It is pertinent to note here that imported telecom equipment is neither manufactured locally nor falls into the category of luxury items. Therefore, the telecom companies do not have any option but to rely on imports.
Similarly, the Ministry of Information Technology and Telecom, in its letter, said that the immediate change in the regulatory requirements is detrimental to the ease of doing business and the confidence of investors. It will severely impact telecom coverage, quality, and affordability for the users, the proliferation of mobile broadband services, the Digital Pakistan vision, and IT export targets. The MOIT&T also urged the SBP to review its decision and exclude telecom-related equipment to facilitate investment and telecom network expansion for the benefit of consumers, which is also a priority of the government.
Being the frontrunner for Pakistan’s economy, the telecom sector plays a pivotal role in the country’s digitalisation, creating a positive impact across all segments of society and boosting the national economy. International connectivity, bandwidth capacity, fibre footprints, and network are being improved to meet the ever-increasing demand for telecom and related services. Due to capital intensive nature of the telecom sector and high dependence on imported equipment, telecom companies are operating on thin margins amid unprecedented rupee devaluation and increasing business costs.
There you have it. When I titled my earlier post “SBP’s misguided import compression”, I was going for clickbait (I am sorry, that’s how I get people to read this labor of love). However, MOIT&T letter and PTA concerns show that I had hit the bulls eye with that title. I will have to update my post about Reza Baqir’s three years at SBP with this faux pas too.
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