KARACHI, July 1: State Bank of Pakistan Governor Dr Shamshad Akhtar has politely turned down textile tycoons’ plea for subsidisation on interest rates on commercial loans they have acquired from banks.

“Subsidisation of either interest rates and expansion of refinancing not only create distortions and complications for monetary expansion, but based on past experiences are also prone to misuse and exploitation,” the State Bank governor said.

According to a press release issued here on Saturday, the SBP governor strongly rejected any demand for easing of prudential regulations in case of defaults. “Both borrowers and financial institutions have to remain within the prudential parameters defined by the SBP,” Dr Shamshad declared in a clear and firm tone.

A representative meeting of the leaders of all sectors of textile on June 16 at the All Pakistan Textile Mills Association threatened to default on bank loans if their package of Rs50 billion incentives and concessions was not considered.

The SBP governor’s advice to the textile industry leaders on Saturday was “rather than rely on temporary financial support which is fiscally not sustainable on a long-term basis and carries the risk of monetary complications, Pakistan’s textile industry should upfront assess their project viability based on alternate scenarios.”

The textile industry leaders are seeking the reimbursement of five percentage point interest on the loans they obtained from 2003 and want this concession to continue indefinitely in future, flexibility in export refinance scheme and a swapping of outstanding loans with long-term financing arrangement for export-oriented projects.

Prime Minister Shaukat Aziz did hear presentation on the Rs50 billion package on May 30 and then last week in Islamabad but did not oblige the textile industry leaders. Instead of taking any decision, the government is one committee after the other to “review and revisit” the Rs50 billion package.

On June 13, Dr Salman Shah, prime minister’s adviser on finance, in a post-budget seminar wondered where Rs50bn resources would come from in the budget to meet demands of the textile industry. He informed the audience that the Lahore University of Management Sciences had been asked to have a look at the Rs50bn package of the textile industry and also at the management structure of textile companies.

On Saturday, the textile industry leaders apprised the SBP governor of their current financial problems, which according to them, were because of high interest rates and utility cost. Their plea was that their products have ceased to be competitive in the world export market.

The textile leaders sought a reduction in the refinance rate under the SBP Export Finance Scheme. Their suggestion was to swap their existing stock of debts based on KIBOR lending rates with SBP’s LTF-EOP scheme. They also asked for allocation of sufficient limits to the banks for meeting the growing demand of the LTF-EOP scheme.

The SBP governor informed the textile leaders that central bank’s tight monetary policy had helped ease somewhat the inflationary pressures.