The State Bank of Pakistan (SBP) has removed all cash margin requirements on imports it had previously imposed under six circulars from 2017 to 2022, fulfilling another condition of the International Monetary Fund (IMF) to reach a staff-level agreement. In a Banking Policy and Regulations Department circular dated March 24, the SBP said it was withdrawing the “existing Cash Margin Requirement (CMR) on import of items with effect from March 31, 2023”. The announcement comes as the central bank’s foreign exchange reserves increased by $280 million to $4.6 billion during the week ending on March 17 on the back of inflows from China. Cash-strapped Pakistan is in a race against time to implement measures to reach an agreement with the IMF on the completion of the ninth review of a $7bn loan programme, which began in 2019. The much-awaited agreement with the lender, which has been delayed since late last year over a policy framework, would not only lead to a disbursement of $1.2bn but also unlock inflows from friendly countries. Cash margins are the amount of money an importer has to deposit with their bank for initiating an import transaction, such as opening a letter of credit (LC), which could be up to the total value of the import. Pakistan has a severe balance of payments problem, with its forex reserves reaching critical levels in the past few months. In such a situation, the central bank had stepped in to impose different types of curbs on imports as an attempt to preserve its dollars. Cash margins are seen as a tool to discourage imports as the amount to be deposited beforehand with the bank increases the opportunity cost for importers. Cash margins are seen as a tool to discourage imports as the amount to be deposited beforehand with the bank increases the opportunity cost for importers. In its latest circular, the SBP declared its past circulars – one each from 2017, 2018, 2021 and three from 2022 – to “stand withdrawn with effect from March 31”. Administrative controls and the depreciation of the rupee reduced imports. Imports fell 22% to $3.931 billion in February from $5.039 billion a month ago. The country’s import bill declined 21% to $37.388 billion in July-February FY2023. Pakistan is facing a delay in a bailout deal with the IMF. Without an IMF agreement, sovereign default is imminent. Also, the ongoing political and economic unrest could make it difficult to get funds from the IMF. Pakistan needs to reach a staff-level agreement with the IMF to secure a $1.2 billion tranche and unlock further inflows from other international creditors. The final barrier to reaching an IMF agreement is an assurance from “friendly countries” to finance a balance of payment gap.