950823

Modifications sought

in forex loan

scheme for exporters

RECORDER REPORT

LAHORE: The scheme of foreign currency loans to exporters that has been finalized and circulated by SBP needs to be suitably modified to make it practical, easy to use and generally acceptable to exporters and bankers failing which the anticipated benefits of the scheme may not acrue.

This was stated by Sheikh Iftikhar Ahmed, Chairman FPCCI Export Committee in a statement issued to the press.

Sheikh iftikhar Ahmed further stated that due weightage should be given to the proposals put forward by the exporters and bankers for modification, addition and deletion to make the scheme successful with the ultimate aim of increasing the overall exports through reduction in the financial cost and greater access to guides.

The Chairman Export Committee FPCCi opined that the Ministry of Finance and SBP have preferred to make a modest and cautious start to the Foreign Currency Loan Scheme and would expand it after it has proved to be successful but he believed that even the initial success of the scheme would depend to a great extent on how it was designed. Therefore, he felt it imperative that appropriate amendments be made in the conceptual framework of the scheme.

Sheikh Iftikhar said that the major objectives behind the exporters demand and the prime minister's decision to allow foreign currency loans to exporters was to make available this facility to all exporters so as to reduce the cost of finance/export thereby making our exports price-wise competitive and to enhance them to the level targeted for the fiscal year 1995-96 i.e. US $9.2 billion, as announced in the Trade Policy.

The Chairman Export Committee said that in its present form the scheme would have limited utility and its benefits would be restricted to few big export houses enjoying good connections with foreign banks, who will also be the main beneficiaries vis a vis NCB's and Pakistani private commercial banks.

To make the proposed scheme more practical, easy to use and acceptable to majority of exporters and bankers, Sheikh Iftikhar has made the following proposals.

1. Conceptually the scheme has been designed to function like Part I of the existing Export Refinance Scheme as it has been made specific to L/C or Firm Contract and utilisation of the loan has been limited to a maximum period of 180 days. Whereas this would restrict the practicality of the F. C. loan scheme it would also increase the cost of borrowng due to charges which banks would levy for processing loan applications for every L/C or Firm Contract. To encourage widespread borrowing the scheme should be redesigned to function like Part II of the Export Refinance Scheme. SBP should approve lending limits under the scheme for individual banks who may in turn fix limits for their clients. Exporters should then be required to repay the loan plus interest out of the export proceeds received by them within the monitoring period. This would also save the exporters from paying the high FEBC premium (about 5 percent) in case the export proceeds of an export shipment are not realised within 180 days.

2. Banks may be allowed to provide finance to the exporters out of foreign currency deposits to be mobilized by them. It may also be re-examined and if found possible, the banks may be allowed to use their existing foreign currency deposits for grant of foreign currency loans to the exporters. Although this would not bring additionality to foreign exchange reserves of the country but this would go a long way in broad-basing the F. C. loan scheme and making the facility available to larger number of exporters at lower cost.

3. With-holding tax on interest paid on F. C. loans should be waived because the foreign lenders would generally not agree to pay our withholding tax. The burden would ultimately be shifted to the borrower and thus the cost of F. C loan would go up. Moreover, the interest is not being paid to Pakistani residents but to foreign residents who are liable to pay tax on interest earned in their respective countries. Our withholding tax would amount to double taxation of the same income.

4. To avoid any future confusion it may please be clarified that foreign currency loans, which will actually be disbursed to exporters in local currency by the banks, will not be subject to the levy of 1 percent Central Excise.