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Withdrawal of export re-financing scheme

  1. How National Fibres closed
  2. Thal Engg. launches a new project
  3. The importance of Kalabagh Dam
  4. Impact of globalisation on Pakistan
  5. Withdrawal of export re-financing on yarn
  6. Federal Budget 2000-2001

Jeopardises export targets—fears of textile industry

By AMANULLAH BASHAR
Jul 24 - 30, 2000

Withdrawal of export re-financing facility available to exporters of cotton yarn and gray cloth has sent a shock wave, which is feared to disturb the rhythm of textile exports from Pakistan.

Some senior players in the textile industry feel that the Federal Minister for Commerce Mr.Razzaq Dawood has taken the decision like a new broom with an ambition to sweep all the abuses overnight. Instead of taking gradual measures to go for more value addition the abrupt decision taken by the minister may prove unproductive, they felt.

They pleaded that export of cotton yarn together with gray cloth shares over 42 per cent of the total foreign exchange earned by Pakistan through exports of the textile products from Pakistan. In the previous year out of the total exports of $5.5 billion, the cotton yarn and gray cloth earned $1.06 billion and $1.07 billion respectively which gives an idea about the significance of this segment in our textile exports. Some of the yarn varieties such as dyed yarn and other varieties earned $7 per kg, which is even, more than the fabrics or made-ups. Hence a sweeping decision should not be allowed to disturb the entire yarn sector.

Conceding to the strong arguments of the textile industry, State Bank of Pakistan (SBP) has however given indication to review the decision regarding withdrawal of export re-financing facility on value added cotton yarns.

The export re-financing facility was so far available to the textile industry for export of cotton yarn irrespective of the count and value added quality and gray cloth.

Mohsin Aziz, Chairman of All Pakistan Textile Mills Association (APTMA) in a representation to the Governor of SBP has suggested that export re-finance facility be allowed on all value added yarns, which secure considerably higher export price than the average price of yarn. These value added yarns are including Combed Yarn, Dyed Yarn, Melange, Elastane Yarn (including 'lycra' yarn) and any other value added yarn securing an export price above the average price of yarn.

APTMA Chairman further suggested that export re-finance facility on fabrics be phased out gradually over the next 4 years by which time, finance or working capital hopefully would be available to the textile industry with relative ease and at reasonable cost.

He also suggested the criteria for allowing re-finance facility for fabrics on the following bases:

Year 2000 performance 2 times

Year 2001 performance 2.5 times

Year 2002 performance 3.0 times

Year 2003 pre-shipment part-II facility to be withdrawn.

Endorsing the government's efforts for increasing exports through exports of value added textile products; Mohsin was of the view that the concept of value addition should not be restricted to export of final textile made ups alone. Instead the concept should be applied to all textile products of higher than average value at each and every stage of the textile production chain, particularly quality textile fabrics produced by the modern shuttle-less looms sector.

APTMA, which reacted sharply against withdrawal of re-financing facility, had expressed his deep concern over indifferent attitude of the government over restoration of re-finance facility on cotton yarn and gray fabrics. Showing his disappointment on what he called lukewarm attitude of the government on this issue, APTMA chairman had said that after a lapse of two weeks nothing has been done to resolve re-finance facility. Now as the exporters of these commodities have become incompetitive, they are not getting export orders.

The government's decision to revoke a favourable financing arrangement for export of cotton yarn and gray cloth will play havoc with the documented segment of the spinning and weaving sector. It is a clear evidence of inconsistency in the government policy. Apt withdrawal of subsidized re-financing from a specific class of exporters is not fair, as it has triggered an immediate liquidity crunch for this sector. There has been immediate rise in the cost of financing of these units, which has gone to 16 from the previous 8 per cent. The government is moving in opposite direction, it has raised the price of Furnace oil, Diesel, Gas and increase in electricity tariff is on cards. These measures will obviously increase the cost of exportable products and restrict their competitiveness in the international market. In this scenario how the set targets to be achieved. The total value of textile manufactures exported during the financial year 1999-2000 was $5.5 billion compared to $4.79 billion during the previous year. If the industry subtract from the value of exports of textile manufactures the value of cotton yarn and cotton fabrics, the total exports of value added textile manufactures would come to $3.36 billion. If the re-finance facility not restored the share of main foreign exchange earner cotton yarn to $1.06 billion and cloth of $1.07 billion will be drastically cut in the financial year 2000-2001. In withdrawing this facility, which provided instrumental in catering to the credit requirements of the exporters of yarn and cloth, the government contention is that under the restructuring and redirection envisaged in vision 2005. The focus to shift to the higher value added sectors; this action has been taken. But the segment of spinners are already exporting value added yarn, such as dyed yarn, Lycra yarn, Melange yarn. If at all necessary any change in the policy of refinance scheme, this facility for the counts of yarn above 30 counts and value added yarn below 30 counts such as combed yarn, dyed yarn, Melange yarn and Lycra yarn may immediately be restored to achieve the set export targets.