The Pakistan Textile Council (PTC) on Monday issued a detailed statement on the State Bank of Pakistan’s (SBP) move to discontinue the Export Refinance Scheme (EFS) and Islamic Export Refinance Scheme (IERS).
In a series of tweets, PTC pointed out that SBP’s recent move to “demolish the EFS and IERS, though not entirely unexpected, has sent ripples through the textile sector and other exporting circles. However, as we’ve demonstrated time and again, we’re resilient. How we adapt is yet to be seen”.
SBP's recent move to demolish the Export Finance Scheme (EFS) and IERS, though not entirely unexpected, has sent ripples through the textile sector and other exporting circles. However, as we've demonstrated time and again, we're resilient. How we adapt is yet to be seen. (1/5)
— Pakistan Textile Council (@PakTextile) August 28, 2023
PTC explained that historically, Textile has been receiving approximately two-third of the total EFS funds, aligning with the council’s contribution of ~60 percent to total exports. “However, PKR value of EFS stock hasn’t kept pace with the currency devaluation as EFS has been frozen for some time now,” it explained.
In real terms, PTC has determined that the PKR value of EFS stock has massively declined. This sudden discontinuation and scramble for funds while the GoP itself is on a borrowing frenzy will undoubtedly pose challenges for exporters – some more than others.
Dissecting Subsidy Myth
According to the Pakistan Textile Council, Textile EFS stock stood at approx. Rs. 545 billion on June 30. “We can take SBP’s Policy Rate (PR) at 22%, as SBP’s opportunity cost. The subsidy is thus roughly the discount to PR, currently 3%, at which it lends to banks, at 19%, to re-lend to exporters,” it said.
The annual subsidy is thus approx. PKR 16.41 billion, USD 54.5 million, @ PKR 300/USD or 0.3% of textile exports, at USD 16.5 billion for the year ending June 30, ’23. This is a rounding-off number when we pitch it against SOE losses, it suggested.
Impact on Access to Now More Expensive Working Capital
PTC noted that exporters, particularly those in textiles, will suffer cost increases, more competition for funds, and thus, reduced access to working capital. “SMEs and MSMEs will suffer disproportionately more”.
📉Impact on access to now more expensive working capital: Exporters, particularly those in textiles, will suffer cost increases, more competition for funds and thus a reduced access to working capital. SMEs and MSMEs will suffer disproportionately more. (1/2) https://t.co/DItLszHFBH
— Pakistan Textile Council (@PakTextile) August 28, 2023
The council emphasized that in challenging times, adaptability and innovation become paramount. The entire textile sector is now subsidy-free except for some pockets of natural gas. “The malign discourse re subsidy hogs has now run its course. Let us see what the new bandobast buys us,” it concluded.
