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Print

$2 billion export losses feared

Commerce Ministry has claimed that Pakistan will face export loss of $ 2 billion, besides delayed payments due to outbreak of coronavirus in Europe and United States of America.

Commerce Ministry has claimed that Pakistan will face export loss of $ 2 billion, besides delayed payments due to outbreak of coronavirus in Europe and United States of America.
The Ministry, in its summary to the ECC maintained that as a result of the global outbreak of coronavirus (COVID-19) pandemic, the demand for Pakistan's textile exports/products, especially apparel, has been severely curtailed. To control the COVID-19 spread, Pakistan's major international markets have locked-down, resulting in closure of brands and retailer stores in its major markets in US and EU. Therefore, most international buying houses have instructed their suppliers to hold shipments, withheld future orders, requested extension of payment timelines, and even cancelled orders.
The situation is likely to worsen over the next three months, potentially resulting in delayed payments and export loss of approximately $ 2 billion. As a result Pakistan's textile exports, which had shown significant improvement in the first three quarters of 2019-20 are likely to suffer a serious set back in the coming months. The resultant cash flow crisis for the export firms is likely to be severe ad many companies may not be able to maintain their operations which may result in both bankruptcies and massive layoffs of workers.
The Ministry argued that in view of the current situation and future scenario, Pakistan's largest export sector will need assistance to improve the cash flow situation at the firm level and more importantly, to pay the workers' salary during the closed down period.
The prime minister, on March 24, 2020 announced an economic relief and stimulus package to ameliorate the adverse effects of the COVID-19 pandemic on the economy. Under this package, the export sector would be given financial relief of Rs 100 billion including for outstanding payments of Duty Drawback claims and tax refunds.
Commerce Division further stated that under the Federal Budget 2019-20, Rs 35 billion were allocated for this purpose to the former Textile Division ( now merged with the Ministry of Commerce), of which Rs 24.5 billion have already been paid off to the textile exporters under various Duty Drawback schemes. The remaining Rs 10.5 billion is to be disbursed for the 4th quarter.
At present, State Bank of Pakistan(SBP) is processing claims worth Rs 49 billion and has revealed that claims worth Rs 40.5 billion would be ready for payment to textile exporters by end June 2020. As Rs10. 5 billion is available with the Ministry of Commerce from the current financial year budget allocation, an additional budgetary allocation of Rs 30 billion is required to fully clear the outstanding and due claims in CFY.
Meanwhile, All Pakistan Textile Mills Association (APTMA) APTMA has appreciated the government for all the positive steps undertaken to combat the extremely negative impact COVID-19 is having on Pakistan's economy.
The Association is of the view that given that the great majority of export orders have either been deferred or cancelled the entire textile sector is in crisis. Europe and the USA are closed for business. The crisis is further compounded by the fact that industry had entered into contracts for importing cotton, the values of which has fallen from around 80 cents/lb to 50 cents/lb as of today.
In this scenario, the government's steps of deferring loan repayments and speeding up refunds will fall far short of keeping the industry afloat. This will result in a lot of concerns/companies going bankrupt. The impact on unemployment can only be shielded by the industry for a month or two beyond which will there will be no capacity to retain workers.
APTMA has suggested that to keep the industry afloat and retain jobs, the government needs to take the following immediate actions ;(i) extend the debt repayment moratorium to cover interest as well as working capital lines of credit;(ii) reduce the rate of interest for industry to 5%;(iii) suspend implementation of 1.5% turnover tax. This is a presumptive tax on profits and as there are no profits possible under the current circumstance it should be suspended/held in abeyance; (iv) zero rating for the sector must be restored. Given the record of FBR and the design of the Sales tax system at least 3 months sales tax gets stuck in the pipeline before it is refunded. As the refund is only reclaimable after exports and exports are not happening, collection of sales tax will only hasten bankruptcies, and usher in a very serious depression. The government js strongly urged to suspend the sales tax regime till normalcy returns;(v) renegotiate the LNG contracts on favorable terms to reduce the cost of gas in times to come and ;(vi) get NEPRA to re-determine the tariffs of IPP's to reflect the actual rates of return thereby reducing circular debt and power tariffs for all in the country.
Prime Minister Adviser on Commerce Razak Dawood late Tuesday in a tweet that Commerce Ministry established Command and Operation Centre to support the industry and will hold discussion with six chambers' presidents at 2 p.m. every day.

Copyright Business Recorder, 2020

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