October 03, 2007	Wednesday	Ramazan 20, 1428

KARACHI, Oct 2: Textile exporters will enjoy the cheaper loans under the defunct Long Term Financing for Export Oriented Projects (LTF-EOP) scheme but the facility will remain limited to letters of credit (LCs) opened by the textile exporters on or before June 30, 2007 for import of machinery for export projects.

The textile sector has been critical to the closure of the scheme but the State Bank took the decision on the basis of its own judgment that the refinance scheme had been grossly misused. The State Bank under the long-term financing provided Rs50 billion during the year 2006-07 and this money was provided at a much cheaper rate compared to prevailing market rates.

However, being the largest export sector the textile industry has been able to influence the government to get the maximum benefit.

The State Bank on Tuesday announced that it has allowed approved banks development financial institutions (DFIs) to avail refinancing facilities under the terms as applicable to now defunct Long-Term Financing of the Export-Oriented Projects (LTF-EOP) scheme in respect of letters of credit (LCs) established for import of plant and machinery for export-oriented projects on or before June 30, 2007.

The SBP’s LTF-EOP scheme was introduced during 2004 to provide medium-to-long term capital financing to export-oriented projects for import of plant and machinery for setting up new units or up-gradation of existing projects (BMR).

Under the scheme, the State Bank provided long-term financing of almost Rs50 billion (including debt swap of Rs34 billion allowed to the value-added textile sectors during 2006-07) to the sponsors of export-oriented projects through banks and DFIs at a rate of 6 % and 7%.

The financing under LTF-EOP scheme was discontinued beyond June 30, 2007 and no new limits for the current 2007-08 fiscal year were sanctioned to banks and DFIs.

A new scheme namely Long-Term Financing Facility (LTFF) was proposed to be introduced and draft of the detailed policy parameters was sent to stakeholders for their feedback on the proposed new scheme.

In the meantime, banks and DFIs and exporters had raised the issue of refinancing of LCs that was established for the import of plant and machinery on or before June 30, 2007 under the then available limits of the LTF-EOP scheme.

In order to accommodate genuine needs of the textile industry, the State Bank has allowed banks and DFIs to avail refinancing facilities for such cases. Due to this move a substantial amount is expected to be released by the State Bank in yet another gesture of support to the textile sector.

Textile exporters were of the view that the demand for refinancing for LCs established before the closure of the long-term financing scheme was genuine though several billions rupees would be needed to finance these LCs.

The sector performed badly last year frustrating the government’s ambitious plan to minimise the ever-increasing trade imbalance, which reached about $13 billion last year. The new fiscal (2007-08) plan hopes for a better textile export growth and this forced the government to extend support as much as possible to the sector.

The increasing trade imbalance has put great threat to the current account balance of the country despite $16 billion country’s foreign exchange reserves.