Gwadar Free Zones are likely to receive a waiver from the existing Foreign Exchange Policy, as the government has formed a high-level committee to exempt both the Gwadar South Free Zone and the Gwadar North Free Zone from the current Foreign Exchange Policy Framework. This significant move will allow all companies operating in the Gwadar Free Zones to directly convert RMB into Pakistani rupees, effectively eliminating the role of the U.S. dollar once and for all, according to a Gwadar Pro's report on Tuesday.

At present, export-oriented companies—mostly Chinese enterprises—operating in both Gwadar Free Zones must first convert RMB into U.S. dollars, and then convert those dollars into Pakistani rupees for local payments. This double conversion results in two rounds of exchange deductions—first from RMB to dollar, and then from dollar to rupee—causing substantial financial losses to companies in the Gwadar Free Zones.

A Gwadar Port Authority official told Gwadar Pro that if the government approves the committee’s recommendations, in line with the directions issued by the Minister for Planning, Development, and Special Initiatives during the 82nd CPEC Progress Review Meeting held last month regarding the agenda item

“Foreign Currency Pilot Project in Gwadar Free Zone,” all Chinese companies operating in the Gwadar Free Zones will be able to directly convert RMB into Pakistani rupees. They will no longer be required to convert RMB into U.S. dollars first. “This will eliminate the double conversion process and protect companies from unnecessary financial losses,” he added.

When asked about the committee’s composition, he said it includes representatives from the Gwadar Port Authority, the Ministry of Industries and Production, the CPEC Secretariat, the Federal Board of Revenue, the State Bank of Pakistan, the Ministry of Maritime Affairs, the Board of Investment, and the Ministry of Finance.

He further stated that during the 82nd CPEC Progress Review Meeting, the State Bank of Pakistan (SBP) briefed participants that the Gwadar Free Zone should be brought at par with other export processing zones in the country by granting a waiver from the Foreign Exchange Regulation Act, 1947, through suitable amendments to the statutes governing the Gwadar Port Authority—offering a sustainable, long-term solution.

As a short-term measure, SBP proposed allowing entities operating in the Gwadar Free Zone to retain up to 50 percent of their export proceeds in Special Foreign Currency Accounts (SFCAs). The retained funds may be freely utilized for current account payments abroad and for settling obligations among entities within the zone in foreign currency.

The Ministry of Maritime Affairs will serve as the secretariat of the committee, which is expected to finalize its report and recommendations within one month.

Under existing Pakistani regulations—specifically, Section 25 of the Export Processing Zones Authority Ordinance, 1980 (IV of 1980)—the Federal Government has already exempted Export Processing Zones from all provisions of the State Bank of Pakistan Act, 1956 (XXXIII of 1956) and the Banking Companies Ordinance, 1962 (LVII of 1962).

Credit: Independent News Pakistan (INP) — Pak-China