KARACHI, Nov 30: The State Bank of Pakistan has decided to keep the export refinance rate unchanged for December 2005 despite frequently increased lending rates by the banks and overall higher interest rates. The central bank in a circular on Wednesday announced that the export refinance rate would remain unchanged at 7.5 per cent for the month of December 2005. By including 1.5 per cent charge by banks, exporters could avail the financing at 9 per cent.

The refinance rate has been kept unchanged since July 2005 to facilitate exporters and for boosting exports, though the banks have not only increased their lending rates but returns to deposits have also increased substantially.

Exports being prime concern of the government fearful of widening trade deficit have been attracting support at different levels. However, exporters maintain that their cost of production has gone up significantly demanding further reduction in the export financing rate.

The SBP had raised the export refinance rate by 1.5 per cent in May from 5 per cent to 6.5 per cent and then raised it to 7.5 per cent in July 2005. In December 2004 the rate was 3.5 per cent.

“Exports are heavily subsidized the world over including India, which helps to cut the trade deficit in highly competitive international markets,” said Jasim Khan, an exporter of textile-based finished products. “Pakistan earns over 61 per cent export receipts from textile sector.”

“Despite presence of a textile ministry there is no awareness among the government machinery about the rising cost of production and cut-throat competition on the world markets,” said Jasim, adding that there was no textile policy to protect its exports from ‘high-cost effect.’

Most of the exporters were of the firm belief that rising trade deficit could not be curtailed in the absence of export policy by carrying regular studies of the world market behaviour and relation of exportable commodities with changing demands.

“Setting up export targets is meaningless without targeting the issues related to exportable products and world market behaviour,” said Sami Alam, another exporter of textile products.

The government fears the trade deficit may rise to $6 billion by the end of current fiscal year.

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

“Two main reasons are there for the drop of production. One, the higher cost of production, and secondly, the low cotton output which again increased the prices of raw cotton this year,” said a textile miller.

Textile sector’s borrowing mainly for working capital is much lower than last year. Experts believe that the textile sector should have borrowed additional Rs15 to Rs20 billion till the end of November 2005 as the cotton season was at its peak. Less borrowing will reflect in the final production and overall exports by the end of the year, they said.