February 1, 2006	Wednesday	Muharram 2, 1427

KARACHI, Jan 31: The State Bank on Tuesday left the export refinance rate unchanged for the month of February 2006 despite increased lending rates and higher inflation.

The central bank in a circular said that the commercial banks would continue borrowing at 7.5 per cent per annum under the Export Financing Scheme (EFS) and would charge a maximum margin of 1.5 per cent on export loans, which would cost 9 per cent to the exporters.

The export refinance rate has been kept unchanged since July 2005. However, the cost of lending has increased during this period due to higher inflation touching 8.4 per cent.

The average lending rate of all banks has also gone up to 10.3pc indicating that the exporters were getting significant advantage.

However, exporters still want to get money at a lower than prevailing export financing rate arguing that the cost of production has increased to the level that makes their products uncompetitive in the international market.

Bankers were of the view that the subsidy should be withdrawn while the independent economists justify the subsidized loans for exports as it is common world over.

“Both India and China are our competitors and they provide subsidized inputs to reduce the cost of production,” said a garment exporter. Garment Industry is facing tough time in the world market and the rising cost of production has drastically hit the Pakistani industry.

One year has completed under the textile quota-free regime and the real impact on developing countries has begun to emerge in the shape of threat to their existing production and marketing capacity. Economic managers are watching with fears the record widening of trade deficit which might be around $10 billion at the end of the fiscal on June 30, 2006.

“It looks that our economic managers are not aware about impact of high cost of production which has been haunting us since the beginning of the quota-free regime in January 2005,” said a garment exporter, Nizam Ali.

“Exporters should be provided with cheaper inputs like export financing to keep them competitive,” he said. Exports might grow at a rate of 10 per cent this year while the imports could be increased by 30 to 35 per cent. The country is expected to witness a 15 per fall in cotton output this year which will hit the overall production and exports. The export of cotton-based textile products constitutes 63 per cent of the total exports earning.

“Higher inflation has already increased the cost of inputs. Even the cost of raw cotton is 20 per cent higher than the previous year,” said another exporter.

Exporters did not see any chance for minimizing the ever widening trade deficit. They said neither the commerce ministry nor the textile ministry had come out with any plan to change the prevailing depressed export growth. In the wake of rising tide of tsunami of Chinese products there is a need for concrete plans to deal with the situation which might flush out economies like Pakistan.

Independent economists have been suggesting to the government to protect the local industries if it is serious to avoid massive unemployment and sharp fall in the economic growth.

Exporters said that textile being major exporting sector might not bring desired results this year as the production had dropped despite increased production capacity in the last four years.