ISLAMABAD, May 14: The government has provided more than $200 million taxpayers’ money as cash subsidy to textile exporters for increasing just $1 billion export of knitwear and readymade garments during the last two years.
Official figures available to Dawn indicated that this amount did not include the State Bank’s assistance to the sector, in the form of higher level of interest rate subsidy on export financing and long-term financing for exports.
The government had allowed six per cent cash subsidy on export of readymade garments and knitwear since April 2005, just after three months of the expiry of the textile quota regime, to help these sectors to compete with the similar products of Bangladesh, India, and China etc in international market.
An analyst said that this growth in export might not be only because of this subsidy as many other factors like preferential market access in some countries and other taxation benefits announced during the last couple of years for the sector would also have contribution in increasing export from these sectors.
They said that actually this subsidy was mainly used for depressing the price of the Pakistani garments and knitwear in international market as even these products unit price was much lower than Bangladesh in EU and US markets.
The export from these sectors did not grow in a ratio as it should be because of all these unexpected government support but the growth might have been retarded because of the low quality of these products to compete with others.
Moreover, it is not clear to ascertain the actual impact of these subsidies in enhancing the export of these textile products, as apparently these subsidies only benefited the consumers of the United States and European Union to get cheaper products at the cost of the Pakistani taxpayers’ money.
Official statistics showed that export of readymade garments reached $2.685 billion during the last two years---April 2005 to March 2007---as against $2.259 billion over the same period of the last year, indicating a growth of 18.85 per cent.
Similarly, the export of knitwear was up by 20 per cent to $3.638 billion during the period under review as against $3.031 billion over the same period of last year.
Currently, the financing facilities to exporters under the Export Finance Scheme (EFS) are being offered for a six-month period at 7.5 per cent, which is around 3 per cent below six-month Karachi Inter Bank Offered Rate (Kibor), and facilities for import of eligible machinery for a period of up to 3 years.
While under SBP's Scheme for Long Term Financing for Export-Oriented Projects (LTF-EOP) are being offered to exporters in the range of 5 per cent below the Kibor of relevant maturities. Similarly, financing facilities under LTF-EOP for up to 7-1/2 years are available to exporters at 7 per cent.