The reported discontinuation of the export finance scheme (EFS) by the State Bank of Pakistan has created panic among textile exporters.
The Export Finance Scheme (EFS) has been in vogue since 1973. The objective was to boost Pakistan’s exports. After the establishment of Islamic banking entities, the SBP was renamed as ‘The Islamic Export Refinance Scheme.’
The Pakistan Textile Council in a tweet explained the adverse impact of SBP’s decision on the textile sector. The PTC further suggested ways to manage the damage. The tweet states “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.”
“Historically, textiles have been receiving approx. 2/3rd of total EFS funds, aligning with our contribution of ~60% to total exports. However, the Pak rupee value of EFS stock hasn’t kept pace with the currency devaluation as EFS has been frozen for some time now.”
“In real terms, it 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: Textile EFS stock stood at approx. Pkr 545 billion, on Jun 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 lend to exporters.”
“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.”
Reported EFS discontinuation worries textile exporters
