The Export Finance Scheme (EFS) had been in operation since 1973 with the objective to boost Pakistan's exports. With the establishment of Islamic banking entities, the SBP designed a new scheme called the 'Islamic Export Refinance Scheme.'
However it has now emerged that as per the Pakistan Textile Council, SBP has decided to end such schemes.
Taking to social media site X, the Pakistan Textile Council wrote a thread detailing what the impact of SBP's decision would have on the textile sector and how the damage should be managed: "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 has been receiving approx. 2/3rd of total EFS funds, aligning with our contribution of ~60% 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."
"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. Subsidy is thus roughly the discount to PR, currently 3%, at which it lends to banks, at 19%, to relend 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 year ending June 30, '23. This is a rounding off number when we pitch it against SOE losses."