By Iqra Waheed ISLAMABAD, March 07 (INP-WealthPK): The State Bank of Pakistan has enhanced the scope of the Export Finance Scheme (EFS) for both the conventional and Sharia-based versions, allowing the exporters to obtain financing against their export proceeds through discounting of export bills or receivables, in an effort to boost foreign exchange reserves. The credit enhancement policy will help the exporters in meeting their needs of working capital and ensure on-time inflow of export proceeds. This will lead to an improvement in inflows of foreign exchange in interbank market, reported WealthPK. Discounting of bills or receivables is essentially a financial transaction where the exporter surrenders its future export proceeds and obtains financing in rupees for the remainder of the period of exports proceeds realisation, according to WealthPK. An exporter can get financing from banks through export bills/receivables discounting. It can be post-shipment or pre-shipment. The rates depend upon the discounting tenor, ranging between 2% and 3%.

	Rate (applicable from Feb 17, 2022 to May 17, 2022)		Rate (applicable post May 17, 2022)
Tenor (remaining days to be discounted)	SBP Refinance Rate	End User Rate	SBP Refinance Rate	End User Rate
(up to) 90	1.0%	2.0%	2.0%	3.0%
(up to)120	0.5%	1.5%	1.5%	2.5%
(up to)180	0.0%	1.0%	1.0%	2.0%

Source: State Bank of Pakistan The SBP has also given relaxation in the export period of proceeds for 180 days for the exporters availing the discount facility. It can be 120 days if the exporter opts for the facility within the 14 days of shipment or before the shipment. The discounting rates post-May 17, 2022 will be lower than the market rates. The export credit enhancement initiative is expected to reduce the cost of doing business and address the liquidity issues faced by exporters through elimination of the sales tax refund. Pakistan has traditionally faced challenges in gaining export competitiveness, often leading to chronic trade imbalances. As the growth in the export sector has traditionally been slow, the economy has become more inwardly-oriented. Because of these anomalies, exports share to GDP has gradually decreased from 23.56% in 2000 to 10.03% in 2020. However, the government’s measures are significantly increasing exports’ share in the GDP.   [caption id="attachment_64531" align="aligncenter" width="696"] Source: Trade Development Authority of Pakistan[/caption] According to the World Bank’s Pakistan Development Update for October 2021, Pakistan has turned more inward-oriented since the turn of the century. As a share of GDP, Pakistan’s exports fell from 16% in 1999 to 10% in 2020. Increased inward orientation poses a problem because greater integration into the global marketplace is closely linked with faster productivity growth. Moreover, Pakistan’s increasingly inward orientation is not the consequence of a structural lack of export potential. According to the study, considering its characteristics (including size, level of development, location, and factor endowments), Pakistan should be exporting around $88.1 billion worth of merchandise, almost four times its current level. [caption id="attachment_64532" align="aligncenter" width="450"] Source: World Bank[/caption] Slow pace in exports is also because of high tariffs. In contrast to the overseas dealers, the domestic firms have a natural benefit in local market due to low conveyance costs and deep understanding of the preferences of consumers. In addition, the government also promotes local sales at the expense of exports. The insufficient support services -- predominantly the long-term financing (vital for plant extensions) -- and the provision of market intelligence (important for reducing the information costs), are also the factors hampering exports.