SBP cuts export refinance rate to 4.5 percent

KARACHI: The State Bank of Pakistan (SBP) on Saturday cut rate of refinance under Export Finance Scheme (EFS) to 4.5 percent per annum from 6 percent to boost flagging exports.
The central bank also trimmed the markup rate on its Long Term Financing Facility (LTFF) to 6 percent from 7.50 percent for a maximum period of financing up-to 10 years. The rates on both schemes are effective from July 01, 2015.
The reduction in the refinance rates on the SBP’s schemes is in line with the announcement made by the Finance Minister Ishaq Dar in his budget speech for the current fiscal year 2015/16.
He then announced that the export refinance facility and long term finance facility would be available for textile-exporters at the most reasonable rates such as at 4.5 percent and 6 percent respectively. The export refinance rate is the rate at which the SBP makes reimbursement to banks against their lending to eligible exporters under its export financing scheme.
Exporters hailed the SBP’s move, saying it would help boost the country’s exports, especially textiles exports.
They said the government must extend the coverage of such schemes across the board.
“Currently, only big exporters avail EFS, it is necessary to provide cheaper finance to small exporters as well,” said Javed Bilwani, Chairman Pakistan Apparel Forum.
“To put the exports on upward track, the government needs to resolve structural bottlenecks like, energy shortages, higher utilities prices, appreciation of the exchange rate and rising cost of doing business, which are the impediments to the growth in exports,” Bilwani added.
The State Bank move shows government’s urgency to help increase exports. Total exports declined to $23.88 billion in FY15 against $25.10 billion in FY14.
The decline in refinance rate is likely to push up the private sector credit demand during the current fiscal year. Despite an accumulative 300 basis points cut in discount rate over a period of seven months by the State Bank, credit to the private sector decreased to Rs 208.7 billion during FY15 as compared to Rs 371.4 billion in FY14.
Exporters borrowed Rs6.3 billion from banks to meet their production requirement in FY15 against Rs14 billion in FY14.