State Bank of Pakistan will provide support through low-markup loans to exporters being affected by the ripple effect of COVID-19 pandemic spreading worldwide causing a drop in demand for Pakistani products.
In this regard, the central bank will provide a refinance facility to banks to provide cheap credit at interest rates that vary between 3 to 6 percent to exporters for working capital and new projects under Export Finance Schemes (EFS) and Long Term Financing Facility (LTFF) schemes.
The total subsidized credit to exporters outstanding under both of these schemes is currently Rs. 660 billion.
Due to the COVID-19 pandemic, Pakistan’s exporters are facing declining demand in overseas markets and problems in executing existing orders. To support exporters in these circumstances and to prevent current liquidity problems from turning into solvency problems amongst exporters, SBP has announced the following measures.
Relaxation In Matching Amount
Availing cheaper credit under EFS is linked with the export performance. Currently, exporters are required to export twice the amount of borrowed funds. In case of failure in meeting the requirement, penalties are imposed and the credit limit for the next year is also reduced. SBP has reduced the performance requirement from twice to one-and-a-half times that will be effective for the current year as well as for FY21.
Extension in Time Period to Meet Performance Requirements
Exporters were required to show performance under the EFS schemes by end-June 2020. This period has been extended by 6 months to end Dec. 2020. Since the additional period will also be counted towards setting new limits, this will help the exporters avail higher limits for FY21.
Extension in Time Period to Ship Goods
Exporters availing the subsidized credit schemes are required to ship their goods within 6 months of availing credit under EFS. In case of failure, penalties are imposed. This period has been extended from six to twelve months. Therefore, exporters will not be liable to pay penalties due to breach of this condition from January to June 2020.
Relaxation in Conditions for Long Term Financing Facility
Exporters who want to avail credit under Long Term Financing Facility (LTFF) are required to have exports worth 50 percent, or USD 5 million, of the total sales to become eligible. This limit has been reduced to 40 percent or USD 4 million for all the borrowings under LTTF during the period January 01, 2020, to September 30, 2020.
Moreover, the requirement of annual projected export performance for four years to avail LTFF for new or BMR projects has been extended by another one year. Now the performance of the projected export will be measured in 5 years.
Another major relaxation has been given to the exporters on the foreign exchange side. Keeping in view the difficulties faced by the exporters, SBP has allowed banks to enhance the time period for realization of exports proceeds from the existing requirement of 180 days to 270 days on a case by case basis where the delay is related to COVID-19.
This will help exporters provide extended time to their buyers in making payments due to the above pandemic. Likewise, to facilitate importers, SBP has extended the time period for import of goods into Pakistan against advance payment from the existing requirement of 120 days to 210 days.
The above measures are expected to facilitate exports. The SBP stands ready to take additional measures as the situation related to COVID-19 and its impact on the economy evolves.