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October 23, 2020

State Bank likely to increase scope of exporter’s retention account

Business

October 23, 2020

KARACHI: The State Bank of Pakistan (SBP) has asked for feedback on its draft seeking to widen the scope of utilisation of exports proceeds retained in special foreign currency accounts by the exporters, so as to boost the country’s exports, industry sources said on Thursday.

However, the proposal was currently under draft stage and the central bank has asked businesses to share their feedback on the proposed changes by October 30, 2020.

The SBP, in a letter written to the Pakistan Business Council (PBC) on October 19, stated that in order to facilitate exporters, the SBP has allowed them to retain certain percentage of their exports proceeds in special foreign currency accounts.

Generally, exporters of goods are allowed to retain up to 10 percent in such account to meet their promotional, marketing, commission and other related expenses abroad.

Further in order to encourage and incentivise the services and IT sector to increase their export earnings, the central bank has allowed retention of up to 35 percent of their exports earning in special foreign currency accounts.

“It is pertinent to mention here that in recent interactions with the industry, the SBP has received feedback from multiple stakeholders that scope of the utilisation of funds retained in the above-mentioned accounts by exporters may be widened to include other foreign payments that they have to pay in relation to legitimate needs of their businesses,” the SBP’s letter said.

In view of the feedback, the SBP was considering to increase the scope of utilisation of exporters’ special foreign currency retention account by allowing additional payments from this account.

After approval of the said proposal, exporters would be allowed to pay for “fee/expenses related to advertisement, promotion, marketing, brand building etc, of products abroad through third party agent or through company’s own subsidiary/ liaison/ marketing office abroad”, the SBP notice said.

They would also be allowed to pay subscription fee for participation in foreign exhibition, fairs and e-commerce platforms for promotion/ marketing of company’s products.

Exporters could also pay foreign consultant’s fee for obtaining services from abroad from the special foreign currency accounts.

Further, the SBP has decided to allow paying for hotel booking and other travel expenses abroad, in lieu of official visits of company’s employees. “Payment for third party warehousing services and shelf space expenses abroad” would also be allowed.

Exporters should be able to invest in subsidiaries, joint ventures abroad in accordance with the framework of investment abroad by residents provided by the SBP under chapter 20 of FE Manual via this account.

Analysts said Pakistan's central bank was considering allowing exporters to take additional steps to develop the market for their products as it wanted to increase exports.

It has offered options to exporters to spend the money abroad at multiple counters compared to a few counters at present.