The 100% cash margin restriction recently imposed by the State Bank of Pakistan (SBP) on the import of major telecom-related equipment will have a negative impact on liquidity and financing needs for the expansion of the network. Hence, this will hamper the annual rollout plans of telecom operators and the expansion of 4G network in Pakistan.
With this abrupt change in regulatory policy, the cash outflow, which was to occur later in the year, must be done immediately (in advance for the bank in the form of cash margins), which has a direct impact on the liquidity and financial health of telecommunications companies.
The Pakistan Telecommunications Authority (PTA) has expressed serious concern over the recent SBP regulations under which banks are required to obtain a 100% cash margin on the import of almost all telecommunications equipment and mobile phones, including electrical equipment, lithium batteries, SIM cards, memory card, servers, routers, major telecommunications equipment/parts, mobile phones, etc.
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It is pertinent to note here that imported telecom equipment is neither locally produced nor does it fall under the category of luxury items. Therefore, telecommunications companies have no choice but to rely on imports.
Similarly, the Ministry of Information Technology and Telecommunications, in its letter, said the immediate change in regulatory requirements is detrimental to the ease of doing business and investor confidence. This will have a huge impact on the coverage, quality and accessibility of telecommunications for users, the proliferation of mobile broadband services, the vision of Digital Pakistan and IT export goals. The MOIT&T also urged the SBP to reconsider its decision and exclude telecom-related equipment to facilitate investment and expansion of the telecom network for the benefit of consumers, which is also a government priority.
As the backbone of Pakistan’s economy, the telecom sector plays a pivotal role in digitizing the country, creating a positive impact on all segments of society and boosting the national economy. International connectivity, bandwidth capacity, fiber footprints and the network are being improved to meet the ever-increasing demand for telecommunications and related services. Due to the capital-intensive nature of the telecom sector and its heavy reliance on imported equipment, telecom companies are operating with thin margins amid an unprecedented devaluation of the rupee and rising business costs. .