Linking overdue export proceeds with EFS puts exporters in a daze

The linking of overdue export proceeds with Export Finance Scheme (EFS) from coming October 1 has left exporters in a daze. The SME Finance Department of State Bank of Pakistan (SBP), in order to streamline the procedure for availing finance under EFS by exporters who have overdue export proceeds, had issued instructions on July 23, which will come into effect from October 1, 2011.
Deeply concerned, exporters have suggested to the department that the circular needs immediate revisit at their end as "it contains harsh monitoring of EFS with special reference to clause 2 (b), which reads as under: "In case the overdue export position of an exporter is greater than 5 percent of the previous year's exports, the exporter will not be entitled to avail the EFS facility till such time as the overdue position is reduced to the 5 percent benchmark level."
Chairman of Towel Manufacturers of Pakistan (Southern Zone), Usman Ali, in a letter sent to the department on September 26 has drawn attention to the fact that the "textile sector is passing through very critical days and the situation is worsening day by day due to recession in the international market, closure of big buying houses abroad, and delay in repatriation of export proceeds due to the bankruptcy of importers."
Apart from international factors, he said, the local factors including delay in refund of drawback on local taxes and levies (DLTL) from State Bank, duty drawback from customs, blockage of GST from sales tax collectorate also hurt textile exports.
The last nail in the coffin of textile sector is insertion of aforesaid clause by SBP which would lead to ultimate wiping of textile from export list of the country and cause unemployment, decline in revenue to the national kitty and foreign exchange earnings of the country, badly needed to the homeland.
On the other hand, normal KIBOR rate of 180 days is 13.31 percent, while export refinance including banking spread is 11 percent, leaving difference of 2.31 percent, which means that SBP will get nothing but it will create bad relationship with exporters and if exports of the country decline the blame would go on the shoulders of SBP.
Usman requested the SBP to revisit the said circular and postpone it at least for two years "for the sake of overall interests of the exporters and the country" as well. The SME Finance Department, SBP's instructions read as under:
--- An exporter shall be eligible to avail financing under EFS Part-I and/or Part-II, if the total amount of overdue export bills at the time of availing the facility is not more than 5 percent of the previous year's export performance shown in EE - I statements, duly verified/finalised by concerned SBP BSC office. Henceforth, exporters availing only the EFS Part-I facility are also required to submit the prescribed EE-I statements.
--- In case the overdue export position of an exporter is greater than 5 percent of the previous year's exports, the exporter will not be entitled to avail the EFS facility till such time as the overdue position is reduced to the 5 percent benchmark level. To meet the above criteria of financing under EFS, following guidelines are to be followed:
--- Each exporter will be required to give a certificate on a prescribed form showing consolidated position of overdue export bills outstanding against all banks as per the record of Foreign Exchange Operations Department (FEOD), as a percentage of the total exports of the preceding year finalised in EE-I statements. The certificate will be submitted through the bank to the concerned SBP BSC office on a six-monthly basis by March 31 and September 30, each year. The certificate will remain valid to the next six months. Process of submission of the certificate would commence from September 2011.
--- In case of verification of the EE-I statements from more than one office, a copy of Entitlement of Refinance Limit Certificates (ERLCs), to be obtained from the concerned SBP BSC offices, and the consolidated overdue export bills certificate, as required above, should be submitted to the SBP BSC office from where refinance is to be obtained. ERLC will be issued by respective SBP BSC offices, based on the EE-I statements finalised by them.
--- In case the EFS facility is availed from more than one office, the consolidated overdue export bills certificate along with ERLCs should be submitted to the SBP BSC office where the exporter opts to get confirmation of the export overdue benchmark. The office, which finalises the 5 percent benchmark on a consolidated basis, will communicate it to the concerned exporter/bank as well as SBP BSC offices where the exporter intends to avail the EFS facility. The concerned SBP BSC office shall also seek confirmation from the ERLC issuing offices for this purpose, if required.
--- If an exporter is eligible for EFS, as mentioned above, by repatriating the proceeds to the level of the benchmark in the intervening period prescribed for submission of certificate, he would be allowed to submit a request along with a new certificate for availing the EFS facility.
--- The total amount of overdue export proceeds will be reported in PKR by applying the annual average exchange rate of the year (simple average of monthly average exchange rate published by SBP), on which the export performance would be based for calculating the 5 percent benchmark of overdue export bills.
--- Any misreporting/misstatement shall attract imposition of fine on bank/exporter at the rate prescribed under the scheme.
--- The concerned SBP BSC offices shall verify the export overdue position of the exporter from relevant data and check the benchmark as mentioned above. In normal cases, this practice shall be adopted twice a year before granting refinance.
--- The existing waiver in the period for exporters with overdue export bills is being extended up to September 30, 2011 to cover the period until the certificate is submitted by the exporters for the first time.
--- Other instructions on the subject shall remain unchanged. Banks are advised to promptly circulate these instructions to their branches and constituents for meticulous compliance, the instructions said.