KARACHI: The State Bank of Pakistan (SBP) has raised the export refinancing markup rates by 200 basis points, bringing them close to the current policy interest rate of 16 per cent.

In a circular issued on Thursday, the central bank said it had decided to reduce the gap between its policy rate and the Export Finance Scheme (EFS) and Long-Term Fin­ancing Facility (LTFF) rates from the existing 5pc to 3pc.

Accordingly, markup rates for financing under EFS (Part-I and Part-II) and LTFF have been increased from the existing 11pc to 13pc a year each with effect from Dec 30 (today), the bank said.

Now when the SBP changes its policy rate in future, the markup rates for the two facilities “will be revised automatically so that the gap between the policy rate and EFS and LTFF rates is maintained at 3pc”, the bank said.

On May 23, the SBP raised the markup rates for financing under EFS from 5.5pc to 7.5pc and under LTFF from 5pc to 7pc.

Exporters already fear 30pc fall in December figures

It also announced at the time that the rates of EFS and LTFF would be linked with the SBP policy rate in future through a formula so that any change in the policy rate was automatically reflected in the rates of these refinance schemes.

“While doing so, it will be ensured that rates on these SBP refinance facilities are maintained at such level that they continue to provide sufficient incentive to the export sector of Pakistan,” it said in that circular.

On July 7, the SBP then linked these rates with the policy rates, raising the markup rates for EFS and LTFF to 10pc a year and thus maintaining the gap at 5pc. The policy was hovering at 15pc at the time.

When the policy rate jumped by 100 basis points to 16pc in late November, the markup rates rose in unison to 11pc in view of the 5pc gap. The SBP has now reduced the gap to 3pc.

A dearth of export orders

The export sector is having difficulty getting orders from developed economies due to declining purchasing power in the United States and the European Union. Exporters are highly critical of a high interest rate of 16pc while the incentive of cheaper money has almost been withdrawn.

Exporters said that instead of facilitating the sector, the government had been trying to create hurdles with higher interest rates.

“I fear a 30pc to 32pc decline in exports in December. It reflects the market conditions and our policy regarding the exports,” said Jawed Bilwani, a manufacturer and exporter of textile products.

He feared that the interest rate might reach close to the current inflation rate of 25 per cent.

“We have no export orders. The warehouses in the United States and Europe are full of products. There is no chance of orders until the end of January,” he said, adding that February could offer some respite.

However, he insisted that the higher interest rate and the “anti-export policy” would not allow the sector to increase exports.

He said for the last two months, factories had been working at 50pc to 60pc capacity, indicating an economic slowdown.

Published in Dawn, December 30th, 2022