Printer Friendly

Reform in exchange payment regulations.

Reform in Exchange Payment Regulations

As a part of a comprehensive package of reforms aiming at deregulation of the economy, crating a liberal environment for savings, investment and growth and putting the economy on the path of stability and self-reliance, the Prime Minister announced on 7th February, 1991 a number of measures to reform the exchange and payments system in the country. These reforms are intended to facilitate rapid industrialisation of the country by creating an exchange and payments regime conducive to domestic and foreign investment, foreign trade and foreign exchange resource mobilisation A number of facilities have also been provided for non-resident as well as resident Pakistanis.

The Government announced foreign exchange reforms. It will be seen that the exchange requirement have been freed from the condition of obtaining approval in respect of all industries except a few which are on the negative list and for which Pakistani investors also require approval. The foreigners and non-resident Pakistan nationals no more need prior approval to invest in shares of companies quoted on the Stock Exchange and enjoy the facility of transfer of dividend and capital in foreign exchange, provided the purchase price is paid in foreign exchange.

Local borrowing entitlements for working capital needs of foreign controlled manufacturing companies have been enhanced and in the case of export-oriented enterprises no limit has been placed on local borrowings. In case of other foreign controlled manufacturing companies, borrowing limits, which hitherto ranged between 50 per cent and 100 per cent in inverse relationship to the foreign share in the equity, have been raised to 100 per cent of the equity,

irrespective of the proportion of foreigners' share in the equity. Forfinancing fixed investment, foreign controlled companies can now obtain advances from local source without the approval of the Government or the State Bank. Ceilings on interest rates and fees, etc. and the minimum period of repayment on foreign loans have also been abolished and that residents in Pakistan who could not possess or freely take out foreign exchange have been freed from these restrictions.

Reforms relating to investments in Pakistan

Foreign Investment

- Investment in New Industries: Foreigners (including Pakistanis holding dual nationality) could freely invest without prior approval in all industries except alcohol which is banned and the specified industries of arms and ammunition, security printing, currency and mint, high explosives and radio-active substances which still require specific approval of the Government. Foreigners could have upto 100 per cent of the equity. However, prior to these reforms Government's approval for issue of capital as well as State Bank's approval for issue and export of shares to non-residents was required.

Under these reforms investments which do not require Government approval will also not require any permission of the Government for capital issue. The company concerned will only be required to submit the prescribed return to the State Bank of Pakistan and on having done so it can issue and export shares to the non-resident investors without prior approval of State Bank of Pakistan.

In the case of specified industries for which approval of Government is still required for setting up of an industry, permission of Controller of Capital Issues to issue capital will also be given along with approval for the establishment of the industry. Remittance of dividend on shares issued to non-residents will be allowed by Authorised Dealers as usual without State Bank's permission. Disinvestment proceeds can now also be remitted after payment of Capital Gain Tax where applicable without State Bank's prior approval.

Investment in Existing Industrial undertaking: Foreign nationals (including Pakistanis holding dual nationality) were not allowed to make investment in shares of existing industrial undertakings on repatriable basis. Foreign nationals (including Pakistanis holding dual nationality) can now invest in the shares of existing industrial undertakings through the Stock Exchange at the market price certified by a Stock Exchange broker against payment in foreign exchange. The company concerned will only be required to submit the prescribed return to the State Bank of Pakistan and having done so it can transfer and export shares to foreign nationals without prior approval of the State Bank. Remittance of dividend and disinvestment proceeds can be made through the Authorised Dealers without prior approval of the State Bank. - Transfer of shares held on repatriable basis from one non-resident to another: Until now shares held by a foreigner could be transferred to another foreigner against payment outside Pakistan only with the approval of the Government where the Government had given specific approval to a foreign investor for investment in Pakistan. No approval would henceforth be required for such transfers.

Domestic Borrowings by Foreign controlled manufacturing companies including branches of foreign manufacturing companies:

Borrowing for Working Capital: Foreign Controlled Manufacturing Companies including branches of Foreign Manufacturing Companies were allowed to borrow in Pakistan for working capital requirements ranging from 50 per cent to 100 per cent of their Paid-up Capital or head office investment, free reserves and undistributed profits/unremitted dividends without prior approval of the State Bank of Pakistan. Within the range of 50 per cent to 100 per cent the permitted extent of such borrowings was related to local equiity on the principle of higher the local equity, higher the borrowing entitlement. For borrowing in excess of such limits prior permission of the State Bank was required.

Henceforth Foreign Controlled Manufacturing Companies which export 50 per cent or more of their production can borrow for working capital from domestic credit institutions without any limit and without prior approval of the State Bank regardless of the local content in the equity. Other Foreign Controlled Manufacturing Companies can now obtain loans equal to their equity without prior permission of the State Bank.

Borrowing for Fixed Investment: Until now the Foreign Controlled Companies were required to meet their capital expenditure requirements from their own sources or from loans raised abroad. Local borrowings for capital expenditure were allowed by State Bank on individual merit. Foreign Controlled Manufacturing Companies have now been allowed to borrow for their capital expenditure from banks, DFIs and other financial institutions issuing Participation Term Certificates without any limit and without prior approval of the State Bank of Pakistan.

Remittance of Profits by Branches of Foreign Companies: Remittance of profits by branches of foreign companies was hitherto allowed with the approval of the State Bank of Pakistan. Henceforth, except in the case of banks, insurance companies, foreign airlines and foreign shipping companies which are subject to special procedures, branches of foreign companies will no longer require State Bank's prior approval for remitting their profits.

Investment by Non-resident Pakistanis: Until now Overseas Pakistanis were allowed to make investment on repatriable basis only in new public shares and Special Savings Certificates (Khas Deposit Certificates). It has now been decided to allow Overseas Pakistanis to make repatriable investment in shares of existing industrial units by purchasing shares from the Stock Exchange against payment in foreign exchange. The company concerned will only be required to submit prescribed return to the State Bank and having done so it can transfer and export shares to overseas Pakistanis without prior approval of the State Bank. Remittance of dividend and dis-investment proceeds to Overseas Pakistanis would not require State Bank's approval.

Foreign Loans for capital expenditure by local companies as well as foreign controlled companies:

General permission for contracting of foreign currency loans for setting up a new industry or for Expansion, Balancing, Modernization and Replacement was already available subject to conditions that the rate of interest should not exceed relevant LIBOR plus 1.5 per cent spread, commitment fee should not exceed 1/2 per cent per annum, of the loan and the loan was repayable in not less than 5 years in the case of PAYE projects and 7 years in the case of other projects. Borrowings on terms beyond these limits required prior approval of the authorities. Industrial undertakings can now obtain foreign loans without any restrictions as to the rate of interest and the front and fees referred to above in cases where Government repayment guarantee is not involved. The period of repayment of loans for all types of projects will also henceforth be freely negotiable.

Underwriting of Shares by Foreign Banks' Branches in Pakistan:

Hithertofore foreign banks branches were allowed to underwrite the issue of shares to the extent of 10 per cent of the public offer. The above limit of 10 per cent applied to all foreign banks taken together. The rule has been changed and a foreign bank can now underwrite shares of any individual company to the extent of 30 per cent of the public offering or 30 per cent of its own capital and reserves whichever is less.

Reforms relating to Foreign Trade

Hithertofore no imports in Pakistan could be made without obtaining an import licence from the licensing authority. Henceforth prior issue of import licence from CCI&E for items on the free list would not be required. An importer can now directly approach a bank for opening L/C registration of contract on payment of prescribed fee to the bank.

Export: Foreign companies which hitherto could not engage in trading activities have now been allowed to undertake export trade without any restriction.

Reforms Relating to Foreign Currency Accounts

Under the existing policy, Foreign Currency Accounts with banks in Pakistan could be fed by remittances from abroad, travellers cheques and foreign currency notes declared to Customs Authorities. The accountholders could also obtain currency notes upto US $ 100 by debit to their foreign currency accounts. Rate of interest of foreign currency accounts was also fixed by the State Bank with the approval of the Government.

Permission has now been given also for credit of proceeds of Foreign Exchange Bearer Certificates and foreign currency notes to the foreign currency accounts without any declaration to Customs Authorities. The limit of withdrawal from the foreign currency accounts in the shape of currency notes has also been withdrawn. The rate of return has been increased and State Bank of Pakistan allowed to fix the rate in future without prior approval of the Government. - Until now Pakistani nationals residing in Pakistan were not allowed to open and maintain Foreign Currency Accounts.

Resident Pakistan is can now open and maintain Foreign Currency Accounts with banks in Pakistan on the same basis as the non-residents including the rates of return. No question will be asked about the source of acquisition of foreign exchange credited to the Foreign Currency Accounts. Balances in the Foreign Currency Accounts will be freely transferable abroad. However, exchange released for any specific purpose from Pakistan, foreign exchange representing sale proceeds of goods exported from Pakistan, earnings of residents on account of services, earnings/profits of overseas offices/branches of Pakistani firms/ companies and banks, which are currently required to be surrendered to State Bank of Pakistan, cannot be paid into such accounts. - Persons holding foreign currency accounts, who were not allowed to obtain rupee loans, can now obtain loan against their foreign currency accounts.

Dollar Bearer Certificates: Government will issue one year Dollar denominated Bearer Certificates. The rate of return on these Certificates will be quarter per cent over relevant LIBOR on the date of purchase. These Certificates can be purchased by any person whether residing in Pakistan or abroad against payment in foreign exchange. These Dollar denominated Certificates can be encashed in foreign or local currency. Profits will also be payable in foreign exchange. No question will be asked about the source of acquisition of foreign exchange for the purchase of these Certificates.

Reforms relating to Foreign Exchange holding and travel

Persons leaving Pakistan could takeout with them foreign exchange only to the extent endorsed on their passports and non-residents were allowed to take out the unspent balance of foreign exchange brought in by them, subject to the condition that they could not take out foreign currency notes in excess of $ 500 unless the same were declared to the Customs at the time of arrival in Pakistan.

The restrictions have been removed and any person leaving Pakistan can take out any amount of foreign exchange. Outgoing passengers will no longer have to declare notes, coins and foreign exchange to Customs Authorities as required hithertofore in terms of State Bank of Pakistan instructions. Incoming passengers can bringin and hold foreign currency without declaration to Customs Authorities without any restriction.

All persons resident in Pakistan and all other persons who are in Pakistan who were required to surrender foreign currency after the prescribed period have now been permitted to retain in Pakistan any foreign currency held by them provided such foreign currency does not represent foreign exchange released from Pakistan for any purpose and foreign exchange representing sale proceeds of goods exported from Pakistan, earnings of residents on account of services, earnings/profits of the overseas offices/branches of Pakistani firms, companies and banks which are required to be surrendered to the State Bank of Pakistan.

The limit of foreign exchange which resident Pakistanis could hold abroad has been raised from US $ 500/-(or equivalent thereof in the other currencies) to US $ 1,000/-.

Other Reforms

Excess Baggage: The existing limit on payment of freight on personal excess baggage in rupees to foreign airlines and shipping companies upto 10 kg. per passenger or maximum amount of Rs, 4,000/- per passenger respectively has been withdrawn and such payments can now be made without limit.

Export Claims: Remittances in respect of all export claims except those relating to quality claims and non-shipment may henceforth be allowed by Authorised Dealers without State Bank's prior approval.

Advertisement Charges: The monetary limit for foreign advertisement in respect of non-exporters has been abolished. Now the exporters as well as non-exporters can publicise their products abroad according to their equipments.

Membership Fee of Foreign Educational, Technical, Professional and Scientific Institutions: The upper limit of remittance for Membership Fee has been abolished and such fees may now be remitted without limit.

Correspondence Courses: Exchange facility for Correspondence Courses which was restricted to some specified courses has now been extended to all Correspondence Courses.

Examination Fees: The upper limit on the amount of fee which could be paid without State Bank's approval for appearing in Examination held in Pakistan by Foreign Professional Institutions has been abolished. Henceforth Authorised Dealers may allow remittance of fees without limit.

Education: For undergraduate studies foreign exchange was allowed in general subjects at a few approved institutions only and for specified technical subjects only at other institutions. These restrictions have been removed and foreign exchange can now be allowed by Authorised Dealers for all undergraduate studies.
COPYRIGHT 1991 Economic and Industrial Publications
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Haidari, Iqbal
Publication:Economic Review
Date:Mar 1, 1991
Words:2424
Previous Article:Focus on socio economic problems.
Next Article:New wave of optimism.
Topics:


Related Articles
Zimdollar is to be convertible by mid-1995.
NFIB: WORKERS' COMPENSATION REFORM REMAINS TOP SMALL BUSINESS ISSUE
Reforms in the financial sector.
New CRT regs.
State Bank suspends license of an Exchange Company.

Terms of use | Copyright © 2017 Farlex, Inc. | Feedback | For webmasters