PM'S RELIEF PACKAGE FOR KP, FATA, PATA
PRIVATE SECTOR IS WORRIED OVER RISING COST OF FUNDS
July 05 - 11, 2010
While trade and industry as well as the agriculture sector in Pakhtunkhawa, Fata, and Pata must be content over the Prime Minister's relief package that allowed a cut in mark-up rates to 7.5 percent on all business, corporate, SMEs, microfinance and agriculture in view of the war related violence and law and order, the private sector in urban centers has expressed concern over what they call unabated increase in electricity, gas prices, high interest rate that are depressing the economic activities.
It may be mentioned that State Bank of Pakistan has devised a procedure for payment of mark-up rate differential to the borrowers of Khyber Pakthunkhwa, Federally Administered Tribal Areas (Fata) and Provincially Administered Tribal Areas (Pata) in pursuance of Prime Minister's announcement of Fiscal Relief Package to rehabilitate the economic life in these areas.
It is interesting to note that the trade and industry has started considering to relocate their businesses to Fata or Pakhtunkhawa in view of the fiscal incentives as well as cheap hydroelectricity. However the only obstacle in their way is the fear of violence on the back of war on terror in tribal areas.
On the other hand the export oriented industry in the urban center has strongly opposed the decision to increase Export Finance rate to 8.5 percent by State Bank of Pakistan, with an increase of 0.5 percent effective from 1st July.
The leading business leaders were of the opinion that the present government has raised power tariff and then intended to increase gas prices and now it has increased interest rates which clearly means the government doesn't bother about economy or earning foreign exchange through exports.
They said that abrupt increase in utilities prices particularly electricity and gas had already thrown exporters out of the competition in the region and now there came another bombshell from SBP.
Mian Zahid Husain, a prominent business leader while commenting on the situation said that export finance rates were already increased to eight percent in April this year, and now in the wake of 13 percent inflation, high tariffs of utilities, manifold taxes, export financing rates set to 8.5 percent will multiply the cost of manufacturing and doing business.
The trade leaders expressed surprise that the government is well aware that a major chunk of the country's export has faced a downward trend, firstly, due to negative perception of Pakistan in the eyes of western world especially Europe and America and war against terror in the region and secondly due to post-effects of global recession and financial crisis. Even then, it took the decision to increase export financing rate which is disappointing sign.
The trade leaders said that they were crying for the last two years for lowering the interest rates and pleading with the government to bring it down to single digit but instead of doing this the SBP has even raised the export finance rates without considering any national interest.
Effective January 1, 2010, banks, development finance institutions (DFIs) and micro finance banks (MFBs) shall charge mark-up rate on all business loans (Corporate, SMEs, Agriculture & Microfinance) outstanding as on 31-12-2009 of the borrowers of Khyber Pakhtunkhwa, Fata, Pata at 7.5 percent per annum or six month Kibor-offer side, whichever is lower, for next two years i.e. up to 31-12-2011 except loans extended to cigarette, textile, cement, sugar and beverages sectors.
In this respect the loans disbursed on or after January 1, 2010 shall not qualify for said relief but loans rolled over/renewed after said date, to the extent of outstanding balance as of 31-12-2009, shall qualify for availing the subsidy. Loans booked outside the Khyber Pakthunkhwa, Fata and Pata on behalf of businesses operating/located in these areas shall also qualify.
The banks/DFIs shall charge maximum rate of 7.5 percent per annum on principal amount of outstanding loans of the borrowers of Kyber Pakhtunkhwa, Fata and Pata and differential between 7.5 percent per annum and applicable six-month KIBOR would be borne by the government of Pakistan as subsidy. However, loans having fixed mark up rates equivalent to or less than 7.5 percent shall not qualify for subsidy. Similarly no subsidy will be applicable, if at any stage six-month Kibor is determined equivalent to or less than the said rate.
With regard to reimbursement of subsidy, it said the markup rate differential shall be reimbursed to banks/DFIs/MFBs on six monthly basis in January and July each year subject to release of necessary budgetary allocation by the federal government for the relevant fiscal year. Amount of subsidy payable in July 2010 shall be calculated on the basis of amount outstanding as on December 31, 2009 on reducing balance basis for all scheduled repayments by the borrowers during six months period on daily product basis. However, dates for payment of support in the next periods shall be announced separately on receipt of budgetary allocations from government for the respective periods.
In case a borrower had transferred its debt from one bank to another bank, then the cost of markup rate differential shall be borne proportionately by both the banks, however, final claim shall be submitted by the later bank and both banks shall proportionately share subsidy to be received from SBP-BSC. Concerned banks/DFIs/MFBs should have to ensure that the facilities are not availed in duplication.
The claims duly completed in all respects shall be processed by SBP-BSC, Peshawar subject to the condition that documents as mentioned in claim form have been enclosed with the applications, which shall be subject to subsequent detailed scrutiny. Eligible amount of subsidy shall be reimbursed to the bank/DFI/MFB through credit to their account maintained with the office of SBP-BSC. However, the amount reimbursed by SBP-BSC shall be subject to onsite inspection and if any amount claimed is found ineligible, the same shall be required to be refunded by the banks/DFIs/ MFBs alongwith prescribed fine.
The SBP circular advised banks that no claim for six months ending on June 30, 2010 shall be entertained after July 31, 2010. Banks, DFIs and MFBs are, therefore, advised to ensure that all eligible cases are submitted as per schedule.