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Is Pakistan defaulting soon? Banks refused LCs today

BusinessIs Pakistan defaulting soon? Banks refused LCs today
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Pakistani banks are not entertaining customers with import transactions amid dollar shortage; informed sources told Dispatch News Desk on Tuesday.

Rumours were rife that all commercial banks are turning away Letters of Credit after running out of greenback, USD, in a ‘horrible’ economic backdrop.

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The situation paints a gloomy picture of the economy as the default sword hangs over cash strapped nation.

As some social media users took to the microblogging platform to share the ordeal, Banks are yet to respond to the dilemma, which gives a bigger picture of the sinking economy as the country’s top leaders are also desperately approaching global lenders and friendly nations to beef up country’s foreign exchange reserves.

Amid the problematic situation, the country’s central bank and other government officials remained tight-lipped about the issue as there is no official word on LCs being declined by all banks.

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As government and institutions are yet to respond, social media got the air of what is happening in the finance market; check some of the reactions here:

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https://twitter.com/Ahmed_Naeem62/status/1612575200016584704

https://twitter.com/ZubairKhanPK/status/1612691294169473031

Here’s how Letters of credit or LCs work

A letter of credit, also known as LC, is a letter/document from a bank assuring that a buyer’s payment to a seller will be received on time and for the correct amount.

The document is crucial in international dealings as if the buyer is unable to make a payment on the purchase; the bank will be responsible for covering the said amount of the purchase.

It is also a bank’s written assurance to pay to the exporter, ensuring the agreed value of the consignment on behalf of the foreign importer, provided that the exporter has complied with all the terms and conditions of the Letter of credit.

People mostly approach banks for LCs for imports of goods as it is a prerequisite in international trade to safeguard the interests of both exporter and importer.

 

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