LAHORE, June 24: The State Bank of Pakistan has instructed the banks and development finance institutions (DFIs) to suspend the facility of three per cent interest rate discount for the spinning sector from July 1, till further instructions.

In a circular issued to the banks and DFIs, the central bank’s microfinance department informed them that the federal government had directed the State Bank not to allow the interest rate subsidy to the spinning sector after June 30.

The government had allowed interest rate subsidy for the spinning sector for one year in order to ease the pressure of rising price of credit and increasing cost of doing business in the budget for 2007-08.

The government, the spinners say, has set aside Rs1 billion in the budget to subsidise the cost of their loans and make them competitive in the global markets.

The new State Bank instruction has, however, created panic among the spinners because the subsidy is adjusted to their loan instalments after every six months. “We have received the subsidy for the period from July to December 2007 so far.

The subsidy for the period from January to June 2008 is to be adjusted in July,” says a leading spinner and yarn exporter.

Another spinner was hopeful that the central bank would take necessary measures to adjust the subsidy before the end of this month.

“The government has budgeted funds for the subsidy in this year’s budget. So it should be no problem for the central bank to disburse it before the end of the financial year,” he said.