KARACHI, Jan 5: Textile sector struggling to survive amid tough competition from China and India in the world export market will get big relief of Rs34 billion debt-swap option given by the State Bank on Friday.
The State Bank has allowed the textile sector to off-load their costly loans taken from the commercial banks and avail the option to swap their loans at the subsidized rates.
The central bank would bear the cost of commercial loans as it will swap the textile sector loans taken during January 1, 2003 to December 31, 2006 for import of machinery.
These loans were taken under the scheme of Long Term Financing for Export Oriented Projects (LTF-EOP). The scheme ended on December 31, 2006.
The SBP said that the mark-up being offered under the debt-swap scheme was 5-6 per cent below the market rates and the textile sector would save Rs35 million in the first quarter through this debt-swap.
The textile sector, which earns over 60 per cent export proceeds for the country, failed to perform as per the target set by the government. The growth target for export is 15 per cent while the exports showed negative growth in first five months of the current financial year.
The export fell by 13 per cent in July, showed zero per cent growth in September and dropped again in October by 7.5 per cent, while it rose by 4.4 per cent in August and 12.5 per cent in November.
The latest data posted on the SBP website on Friday showed that the trade deficit was $4.205 billion during July-November 2006.
The continued dependence on textile sector for export growth has threatened the export strategy of the policy makers as tough competition with China and India left no market place for high-cost Pakistani products.
The textile policy even failed to catch up with the newly-born textile industry of Bangladesh, which does not produce a single cotton flower but left Pakistan far behind in the international market.
A UNDP report issued in last of week of August said that Bangladesh, which does not produce cotton, got 59 per cent higher price for its textiles and clothing compared to Pakistan.
The report said that Pakistan in the region was getting the lowest price of its textile products from the European Union (EU) and the United States, while export to the two markets was also declining. Pakistan gets the lowest price of textiles and clothing compared to Bangladesh, India and China, it added.
Last month the SBP released export refinance figures that showed that the amount of financing was more than last year but the export growth was negative.
“Incentives after incentives will not work since the textile sector production capacity is at optimum point,” said an analyst adding that only value-added sector like garments is facing threat. Pakistan’s maximum textile exports still based on semi raw material like cotton yarn and cotton cloth, which are easily sellable.
The SBP said out of Rs34 billion of debt-swap, the privatised banks (including NBP) have swapped long-term loans of Rs21.9 billion followed by private banks (Rs6.29 billion), foreign banks (Rs4.1 billion) and development finance institutions (DFIs) (Rs1.67 billion). Tenor for the converted loans on an average is expected to be close to 4 years.
