KARACHI: Pakistan could face crunch in fuel supplies in February as banks have stopped financing and facilitating payments for imports due to depleting foreign exchange reserves, traders and industry sources said.

Country is facing balance of payments crisis and plummeting value of rupee is pushing up price of imported goods. Energy comprises large chunk of Pakistan’s import bill.

Pakistan typically meets more than third of its annual power demand using imported natural gas, prices for which shot up following Russia’s invasion of Ukraine.

“There is no shortage this fortnight. If we don’t have LCs (letters of credit) open right now, we might see shortages in next fortnight,” a senior official at one of oil companies told Reuters. Letter of credit issued by importer’s banks is standard form of payment guarantee in oil trade to exporter.

Oil traders, however are shunning countries such as Pakistan and Sri Lanka due to an acute shortfall of foreign exchange.

At an industry meeting on financial challenges faced by fuel importers, State Bank of Pakistan officials cited “Severe liquidity issues” faced by country for delays in opening of LCs, according to January 19 letter from Imran Ahmed, Director General of Oil, reviewed by Reuters.

Managing Director of PSO said gasoline cargo due for loading on January 13 has already been cancelled due to non-opening of LCs. “He added that country is having limited stocks and such situation can lead to dry out,” according to letter.

Published in The Daily National Courier, February, 01 2023

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