Textile firms took risk and sold forward US dollars: Razak Dawood

ISLAMABAD: The government has flatly refused to provide 10 textile groups compensation amounting to Rs15 billion against the loss incurred because of their future trading. Adviser to Prime Minister on Commerce, Textile, Industries & Production and Investment Abdul Razak Dawood confirmed the decision of the government not to cover the loss of 10 textile groups, saying: "A few firms made a commercial decision to take risk & sold forward US Dollar. Now they are exerting pressure to cover their loss of Rs15 billion."

Dawood further said in his tweet: "I feel that this is not fair as it was a business decision which did not work out. The demand of the said firms was also discussed at the highest level and my views were supported. It was, therefore, decided that the government will not compensate these firms from taxpayers money."

The 10 groups of textile industry earlier asked the government to intervene by giving exporters the option to make export contracts null and void to mitigate losses that have been estimated up to Rs15 billion, mainly because of the recent spike in the value of US dollars against Pakistan Rupee to close to Rs167.

The said textile groups had pleaded that they had sold forward dollars at approximately Rs160, meaning that they would have got Rs160 for every US dollar paid to them.

However, as their orders are deferred or cancelled, they are receiving no dollars in sales to settle this Forward. They also pleaded saying that this would be okay if the dollar remained at its value. However, the sudden upsurge in dollar value means that exporters have to pay the difference out of pocket as a loss and this is something that they cannot afford right in the given circumstances, and they will likely be paying penalties or even default. The said demand was agitated in a letter to Adviser to PM on Commerce, Textile, Industries and Production and Investment Abdul Razak Dawood by 10 groups of textile.

However, the APTMA spokesman says it does not own the said demand of 10 groups of textile industry, saying it never asks for currency settlements of future contracts as this is business-to-business transaction and APTMA does not support this kind of demand.

The letter of 10 textile groups urged the government to intervene by giving exporters the option to make these contracts null and void to mitigate the losses as the losses have been estimated to be approximately Rs12 to 15 billion. The total forward booking is estimated to be about US$3 billion. If this value is closed out today, the average difference on these bookings is about 3pc, which equates to US $90 million or approximately Rs15 billion as of today. The 10 groups of textile industry asked the government to use the reserve fund that has Rs100 billion to cancel these contracts and to settle with the commercial banks as soon as possible.

The letter signed by the 10 groups said: “Over the last few months, exporters had sold forward dollars at approximately Rs160 which means that we would have got Rs160 for every US dollar paid to us. However, as our orders are deferred or cancelled, we are receiving no dollars in sales to settle this Forward. This would be okay if the dollar remained at its value. However, the sudden upsurge in dollar value means that exporters have to pay the difference out of pocket as a loss. This is something that we cannot afford right in the given circumstances, and we will likely to be paying penalties or even default.’’