Government unable to meet textile subsidy

The resource constrained government is unable to address Rs2 billion in claims of textile exporters under the mark up rate subsidy scheme. Funds released by the Ministry of Textile Industry (MINTEX) to the central bank are enough only to cover 40 percent of the subsidy claims.
The programme is part of the second installment of the Export Finance Mark-Up Rate Facility (EFMRF) and Mark up Rate Support for Textile Sector (MRSTS) against long term loans. “Our estimates show that in total, Rs1.5 billion are due under the textile mark up support and Rs725 million are payable under export finance markup,” SBP Chief Spokesman Syed Wasimuddin told Pakistan Today.
The outstanding amount is due for a six-month period extending from March 1 to August 31 last year. It has emerged that the central bank was requesting commercial banks and development finance institutions (DFIs) to clear the dues of textile exporters.
The State Bank, through IH&SMEFD Circular Letter No. 09, revealed that the fund-starved MoT had released only 40 percent of the outstanding amount that are owed to exporters by the banks and DFIs. “It is advised that MINTEX release the necessary budget to make payments in the second installment of mark-up subsidy for the period,” the SBP circular said.
However, it went on to say that the budgetary allocation was ‘not sufficient’ to clear all of the claims under the two schemes for the period. The central bank advised the banks and DFIs to separately determine the installments of mark-up subsidy for the period under review in the context of both the schemes. “They should make payment to the eligible exporters and borrowers to the extent of 40 percent of total subsidy,” the bank circular indicated.
It added that balance amount of the subsidy would be subject to the receipt of requisite funds from the federal government. The concerned branches of the banks and DFIs were informed that after paying subsidy amount to the exporters, they might seek reimbursements from concerned offices of SBP. The banks and DFIs would have to submit the duly-completed claims they received from the exporters in accordance with the claim forms up till June 15.
“Each claim should invariably be accompanied with a duly attested copy of Ministry of Textile Industry’s Registration Certificate,” the regulator said. Talking to Pakistan Today, textile exporters expressed fears that late payments from the government added to the burdens of the textile industry which already faces a financial crunch owing primarily to deflation in the local cotton market.
“From January (2011) onward over 20 percent of the garment apparel factories were shut down due to the liquidity crunch and energy crisis,” All Pakistan Readymade Garment Association Chairman Ejaz Khokhar informed Pakistan Today. The exporter said many commercial orders have been cancelled due to delays in delivery primarily attributed to power cuts.
State Bank Chief Spokesman Syed Wasimuddin, however, underlined that the central bank was forced to pay 40 percent of the subsidy claims that had been released by the government and the remainder will have to addressed by the ministry of textile.