ISLAMABAD: State Bank of Pakistan has reportedly objected to some amendments proposed by Chairman Senate Standing Committee on Finance to the Protection of Economic Reforms Act (PERA) 1992 and stated that these would create problems for regulators from foreign exchange prospective.
Sources said that SBP submitted comments to the proposed amendment bill 2014 introduced in the Senate and subsequently forwarded these to the Senate Standing Committee for a discussion.
State Bank of Pakistan submitted in a written comment to the committee that regarding substitution of existing section 5 of the PERA, 1992 with the proposed section 5, it may be mentioned that existing section provides certain immunities to foreign currency accounts.
SBP was of the view that as per the existing foreign exchange regulations, proceeds for goods and services exported from Pakistan are required to be repatriated to Pakistan within the prescribed time period.
The delay in repatriation of export proceeds or non-repatriation is dealt with under the provisions of Foreign Exchange Regulation Act, 1947. “We feel that the proposed amendment would create problems for SBP from foreign exchange perspective as exporters of other goods and services would also like to avail the similar facility. Further, monitoring of the proposed off-shore accounts would become impossible for SBP,” the regulator added.
As proposed section 4 intends to allow only authorized dealers, foreign branches of Pakistani banks, shipping companies and airlines, insurance corporation incorporated in Pakistan and its subsidiaries, etc to open and maintain foreign currency accounts outside Pakistan and all other individuals and entities may become ineligible to open and maintain foreign currency accounts within and outside Pakistan. Additionally, the regulator stated that a question may arise as to the legality of existing foreign currency accounts.
Another section proposed in the section 4(5) that a person resident in Pakistan, being an exporter who has undertaken a construction contract or a turnkey project outside Pakistan or who is exporting services or engineering goods from Pakistan on deferred payment terms may open, hold and maintain a foreign currency account with a bank outside Pakistan by subject to (i) approval as required under the Foreign Exchange Regulation Act 1947 has been obtained for undertaking the contract/ project/ export of goods or services and (ii) the terms and conditions stipulated in the letter of approval have been duly complied with.
The SBP was of the view that through the proposed amendment, authorized dealers (Banks) in Pakistan are being allowed to open, hold and maintain with their branch or head office or correspondent outside Pakistan a foreign currency (Nostro) account for the purpose of transacting foreign exchange business and other matters.
“This amendment will confine an authorized dealer (bank) to the opening of only one foreign currency account abroad. This might create numerous problems for the banking industry as the banks have to maintain foreign currency accounts in different countries/currencies for transacting foreign exchange business,” added SBP.
The law proposed section in section 4 (2) that a branch outside Pakistan of a bank incorporated or constituted in Pakistan may open, hold and maintain with a bank outside Pakistan and a foreign currency account for the purpose of carrying on normal banking business outside Pakistan subject to compliance with the directions or guidelines issued from time to time by the SBP, and regulatory authority in country where the branch is located.
The regulator’s response was that branches of Pakistani banks operating abroad with the permission of the SBP run their business under the rules and regulations issued by the central bank of the host country. Accordingly, putting any restriction related to opening/maintenance of foreign currency accounts by overseas branches of Pakistani banks may not be implementable and may create numerous problems for their working.
On the proposed amendment with respect to shipping of airline company incorporated in Pakistan may open, hold and maintain with a bank outside Pakistan, a foreign currency account for the purpose of undertaking transactions in the ordinary course of its business.
SBP was of the view that as per the existing foreign exchange regulations, a shipping or airline company may open, hold and maintain with a bank outside Pakistan foreign currency accounts for the purpose of undertaking transactions in the ordinary course of its business with the approval of SBP. In terms of the proposed amendment, all other individuals and entities may become ineligible to open and maintain foreign currency accounts outside Pakistan.