KARACHI: The State Bank of Pakistan (SBP) Thursday announced increase in the Export Finance Scheme (EFS) and Long-Term Financing Facility (LTFF) by 2 percent to 13 percent, with immediate effect.

Previously, there was some 5 percent gap between the policy rate and EFS and LTFF rates, however, now the State Bank has decided to further reduce the gap by 2 percent. “It has now been decided to reduce the gap between policy rate and EFS & LTFF rates from existing 5 percent to 3 percent,” the SBP circular said. Accordingly, markup rates for financing under EFS (Part-I & Part-II) and LTFF have been increased by 2 percent. With current increase, markup rates for financing under EFS (Part-I & Part-II) and LTFF have been increased from the existing rate of 11 percent p.a. to 13 percent p.a. each, wef, December 30, 2022.

Further, in future with any change in the SBP policy rate, markup rates for EFS and LTFF will be revised automatically so that the gap between policy rate and EFS & LTFF rates is maintained at 3 percent.

In order to strengthen monetary policy transmission, the Monetary Policy Committee of the State Bank, in May this year, decided to link the EFS & LTFF rates with the policy rate and adjust automatically as per changes in the policy rate. However, it was also decided by the committee that EFS & LTFF rates will remain below the policy rate in order to incentivize export sector.

In May, the gap between the policy rate and the EFS & LTFF rates was some 6.25 percent as markup rate for financing under EFS was enhanced from 5.5 percent p.a. to 7.5 percent p.a. and mark up rate for financing under LTFF was increased from 5 percent p.a. to 7 percent p.a. as against the 13.75 percent policy rate, which was up by 150 bps.

In July, the difference between the policy rate and the EFS and LTFF rates was further reduced to 5 percent. In July 2022, policy rate was rose by 125 bps to 15 percent, however, mark up rate for financing under EFS (Part-I & Part-II) rose by 2.5 percent from 7.5 percent p.a. to 10 percent. In addition, mark up rate for financing under LTFF is increased by 3 percent from 7 percent p.a. to 10 percent p.a.

Now, with the fresh SBP directives, issued on Thursday, the gap in the policy rate and the EFS & LTFF rates has reduced to 3 percent from 5 percent as the current policy rate stands at 16 percent.

Exporters said that this step will increase the cost of export-oriented goods and exporters may face further financial issues due to higher cost of borrowing.

Copyright Business Recorder, 2022