International banks terminated trade credit facility for Pakistani oil importers!
The media has reported that Pakistani refineries may not get credit facilities for oil imports anymore. While some of the oil suppliers are paying advance payments to the foreign banks to get oil regularly due to the political uncertainty in the country.
The News has reported that foreign banks warned about fuel shortages in Pakistan. Due to the highly risky country now, international banks are not accepting letters of Credit (LCs) for oil imports.
The procedure of Letter of Credit:
Local banks open LCs for the oil import from international markets. On the other hand, foreign banks confirm the LCs and provide payment guarantees to the oil exporters. According to this scenario, if a local bank gets defaulted then its related foreign bank pays the exporter.
A source has told The News that political unrest is the main cause of this issue. Now foreign banks are fearing to confirm LCs due to the high risk.
A deadlock situation between Pakistan and the IMF has also messed up the issue.
A severe credibility issue jumps up for Pakistan due to this deadlock.
Sources notified that Pakistan may be the next country to follow Sir Lankan default. It is because Sri Lanka faced the same balance of payment crises that Pakistan is facing right now.
This alarming situation has undermined Pakistan’s loan rating and confirmation of LCs are also assumed as high risk.
According to various sources, oil marketing companies and refineries both are facing very serious issues.