Pakistan: SBP regulations to adversely impact telecom industry

The recently imposed 100 per cent cash margin restriction introduced by the State Bank of Pakistan (SBP) on importing major telecom-related equipment will adversely impact liquidity and funding requirements for network expansion. Hence, it will impede the annual rollout plans of telecom operators and 4G network expansion in Pakistan.

With this abrupt change in regulatory policy, the cash outflow, which was expected to happen later in the year, has to be made immediately (upfront to the bank as cash margins), which directly impacts the liquidity and financial health of telecom companies.

The Pakistan Telecommunication Authority (PTA) has raised serious concerns about the recent SBP regulation whereby the banks are directed to obtain a 100 per cent cash margin on importing almost all the telecom equipment and mobile handsets, including power equipment, lithium battery, SIM card, memory card, servers, routers, main telecom equipment/parts, cellular mobiles phones, etc.

It is pertinent to note here that imported telecom equipment is neither manufactured locally nor falls into the category of luxury items. Therefore, the telecom companies do not have any option but to rely on imports.

Similarly, the Ministry of Information Technology and Telecom, in its letter, said that the immediate change in the regulatory requirements is detrimental to the ease of doing business and the confidence of investors. It will severely impact telecom coverage, quality, and affordability for the users, the proliferation of mobile broadband services, the Digital Pakistan vision, and IT export targets. The MOIT&T also urged the SBP to review its decision and exclude telecom-related equipment to facilitate investment and telecom network expansion for the benefit of consumers, which is also a priority of the government.

Being the frontrunner for Pakistan’s economy, the telecom sector plays a pivotal role in the country’s digitalisation, creating a positive impact across all segments of society and boosting the national economy. International connectivity, bandwidth capacity, fibre footprints, and network are being improved to meet the ever-increasing demand for telecom and related services. Due to capital intensive nature of the telecom sector and high dependence on imported equipment, telecom companies are operating on thin margins amid unprecedented rupee devaluation and increasing business costs.