ISLAMABAD — Larger and cheaper financing for exports that has just been announced will enlarge sales abroad, and will also help greater import of raw materials and equipment.
The latest move by the State Bank of Pakistan (SBP), the central bank, is part of continuously reducing the financing cost for business. A reduction in the cost of production of a wide range of products is being brought down, as an active policy. It will help Pakistani products to improve or maintain their competitive edge over several other countries that have the potential of eroding Pakistani business.
The SPB has announced the new financing facility relating to Part II of the Export Refinancing Scheme. The concessional credit will be available for export of knitwear, hosiery, hand-knotted carpets and rice — all key items in the overall sales abroad, as well as those whose sales are being promoted in order to attain the country’s $10.4 billion export target for the current fiscal 2003.
The four items — knitwear, hosiery, hand-knotted carpets and rice — account for $1.5 billion annual sales abroad that is 17 percent of overall annual exports. Their exports were hit in the wake of Sept. 11 incidents as a number of orders for hosiery and knitwear had been canceled.
Banking analysts say larger concessional credit is on the cards for a range of other items, as the overall interest rate is being brought down and a greater need is felt to boost exports.
Finance Minister Shaukat Aziz is pushing for "a single digit interest rate." His reason for this hope to materialize is the fact that for the last three years inflation rate has come down and moved between 3 to 5 percent annually, according to official statistics. But, independent economists question this estimate.
Part of the reason for inflation to slow down is that the economy has felt a squeeze now for several years. The government and the business are now trying to expand the economy. Part of the strategy is to reduce the interest rate. What hit the industry, business and export, over years was a high rate of interest, that four years ago was as high as 23 percent, although the favorite and "blue chip," clients were extended advances at a comparatively cheaper rates.
SBP says concessional financing will be available in 2003 for upto two-thirds of total sales abroad of any company in fiscal 2002. It means if, previously, a company’s exports in fiscal 2002 were $10.0 million, it was entitled to concessional export financing for $5.0 million. But, under the new rules cheaper export credit will be available for upto $7.5 million.
The SBP provides commercial banks concessional refinancing for export credit at the rate of 6.5 percent a year.
— 21 October 2002
