July 15, 2006	Saturday	Jumadi-ul-Sani 18, 1427

KARACHI, July 14: State Bank Governor Dr Shamshad Akhtar on Friday announced a cut in export refinance rate to boost exports of the country.

Addressing a press conference the SBP governor said that the rate under the Export Finance Scheme (EFS) had been reduced to 6.5pc from 7.5pc and the banking spread to 1pc from 1.5pc.

“The total impact on export finance rate will be of 1.5pc and the exporter can borrow at 7.5pc instead of 9pc earlier,” she said.

Dr Shamshad also announced reduction in credit rates for long-term financing scheme for imported and locally manufactured machinery. Under this scheme, which would be a new scheme after merger of Locally Manufactured Machinery (LLM) and Long-Term Financing for the Export-Oriented Projects (LTF-EOP), the banking spread had been reduced from 3pc to 2pc.

Import of generators was also allowed for financing under the same scheme. She said that the decision would facilitate the exporters from loadshedding, which hampers production. She made it clear that the export refinance rate had not been detached from the six-month treasury bills despite lowering of rate under the EFS.

“The scheme has not been detached. When the circumstances will improve, the rate under the export finance scheme will again be brought at par with the rate of the benchmark six month T-bills,” said the SBP governor.

She said banks and DFIs had been allowed to sanction and disburse loans as per the criteria laid down in the scheme and no prior approval of the SBP would be required.

The utilisation of at least 50pc of the total limits by participating financial institutions (PFIs) for SME sector was being withdrawn and they were advised to give preference to meet the financing needs of the SME borrowers.

The SBP governor said only SME borrowers were allowed to purchase plants, machinery, equipments and accessories from the commercial importers.

The borrowers may import plants and machinery required for their projects under the scheme irrespective of it was being locally manufactured.

Replying a query the SBP governor said that the total outstanding loans under the export finance scheme were Rs108bn. The disbursement during FY06 under the scheme was Rs270bn. She said that the credit facility was revolving in nature and credits were given for maximum six months.

She said the mounting T-bills stocks was concerning and the SBP had asked the ministry of finance to diversify its sources. The stocks of T-bills crossed over Rs500bn by the end of the fiscal year.

The textile sector, the highest foreign exchange earner, has been demanding a subsidy of Rs50bn to compete with regional rivals like India, China and Bangladesh on the international markets. The SBP governor said that the lowering of export financing rate would help reduce the cost of production.