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November 13, 2019

State Bank unveils new measures to boost exports


November 13, 2019

KARACHI: The State Bank of Pakistan (SBP) on Tuesday announced new measures to help boost exports and improve the country’s ease of doing business environment.

The central bank decided to increase the existing limits of export finance scheme up to Rs100 billion, in addition to allowing manufacturing sector $10,000 advance payment against imports.

“We want exporters to avail financing facilities under this scheme, which will help exporters in increasing production capacity,” the SBP Governor Reza Baqir said during a news conference. “Exports have to become the backbone of the economy,” he said.

Baqir said the SBP’s refinancing schemes are playing a significant role in credit expansion. He said release of exporters’ refunds in the form of bonds had negative impact on the business environment as they were not acceptable to the exporters. He hoped that the exporters’ cash refunds, as per the government announcement, would soon be released.

“We are looking [towards] positive developments,” he said. “The GDP is decelerating but not negative. LSM (large scale manufacturing) activity is increasing in some sectors and decreasing in some sectors as well. The improvement in sentiment will drive foreign investment in future.”

Refinance facilities are targeted loans from the SBP to support exports and industrial growth with the ultimate objective of promoting overall economic development of the country. Over the years, SBP has introduced special schemes under its refinance window to ensure adequate supply of financing to the value-added industries at competitive rates for enhancing their production capacity and meeting working capital requirements.

Export finance scheme ensures short-term credit availability with concessionary rates and long- term financing facility to exporters for encouraging export-led growth. The SBP amended a rule to facilitate the manufacturing sector. Previously, import advance payment of up to $10,000 per invoice was allowed for importers cum exporters for import of raw materials and spare parts for their own use only.

Now, the banks are allowed to effect advance payment up to $10,000, or equivalent thereof, “per invoice on behalf of manufacturing concerns for import of raw materials and spare parts for their own use only,” the SBP said in a statement on Tuesday.

SPB governor said increase in the limit of export refinance scheme and giving permission to the manufacturers for $10,000 advance payments against raw materials should be seen as a part of the government’s effort to further improve the country’s ranking in the World Bank’s ease of doing business index.

Baqir said the foreign exchange market is stable and the stock market is bullish after the implementation of the International Monetary Fund’s program in the country. Increase in the SBP’s foreign exchange reserves last week was due to improvement in market sentiment and falling forward-booking liabilities.

“The forex reserves rose as we used opportunities to build up these reserves,” he said. “It’s not correct [to say] that the reserves are increasing due to foreign borrowings, but [this is] with enhanced country’s credibility in international market and the reforms the government implemented.”

SPB governor said the central bank posted losses in the last fiscal year due to foreign exchange losses amid currency depreciation. Saudi oil facility is transparent as overall imports are shown in current account, and facility is shown in financial account.

Baqir said the SBP has realised the impact of interest rates on the economy. The SBP’s monetary policy committee (MPC) takes interest rate decision “independently”.

“The speed of inflation is one gauge the MPC considers before taking monetary policy decision,” he said. The currency depreciation increased utility prices and high fiscal deficit pushed the inflation up in the past few months. The MPC sees pressure on inflation would ease in the second half of FY20, he added.