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The lifting of sanctions on Iran has provided an opportunity to the State Bank of Pakistan and its counterpart in Iran, Bank Markazi Jamhouri Islami Iran (BMJII), to ink the necessary accord to facilitate trade. The agreement was signed between SBP Deputy Governor Riaz Riazuddin and BMJII Vice Governor Ghulamali Kamzab in Tehran on behalf of their respective central banks. The objective of the agreement is to provide a settlement mechanism to promote trade between the two countries. As is the norm, this mechanism will be used for the payment of trade conducted via letters of credit and in accordance with international laws and regulations. However, its details will be issued in due course of time.

As per terms and conditions of PBA, the parties will open in their banks a special account denominated in Euros in the name of one another. These special accounts will be free of any charges, taxes and commissions. In the PBA, Euro means the lawful currency of the European Union (EU) and would be considered both the currency of accounts and currency of payment. The parties shall grant one another a reciprocal credit facility of Euro 250 million in their respective special accounts. The agreement may also be amended or modified at any time through a mutual written consent of the parties. However, all differences or disputes with the application or the interpretation of this agreement shall be amicably settled through mutual consultation and negotiations between the parties.

We feel that this was a historic agreement between the two countries which could play a part in expanding bilateral trade. At present, trade between the two countries is quite limited due to a number of factors, including near non-availability of banking channels to open letters of credit for conducting normal trade. Bilateral trade between the two countries was also greatly hampered due to US sanctions imposed on Iran. Now that the Banking and Payment Arrangement (BPA) has been signed, both the central banks will invite banks in their respective jurisdictions to act as authorised banks for undertaking trade transactions. Hopefully, at least major banks of Pakistan will be interested to open their branches in Iran while the same could be expected from the Iranian side. Their business could get a boost because Pakistani traders are already quite keen to export the desired merchandise to Iran and one of the deterrent factor, the absence of banking channels, has now been removed. A large part of smuggling across the borders may be channelized through legal means after the agreement. The bilateral trade may also get a boost due to lower transportation costs and the friendly relations between the two countries may be strengthened further. Besides, projects like long delayed gas pipeline project would be facilitated due to the present agreement on PBA. Overall, the accord is likely to prove beneficial and could result in a win-win situation for both the countries.

Copyright Business Recorder, 2017


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