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Impact Of Export Finance Schemes In Pakistan

CONTENTS

LITERATURE REVIEW

I have checked all the record regarding this research and find some literature regarding export finance. This research was conducted on the Investor’s perspectives. This research also studied about the major financial institutions which provide the finance facility to the exporters.

As in many developing countries, one major feature of Pakistan’s exports is the geographical concentration was to only five markets. They were, in descending order - EU, United States, United Arab Emirates, China and Afghanistan. The EU and the United States were already the first destination of the country’s exports at the beginning of the nineties. Since then the relative importance of the EU has decreased and the importance of the USA and of the United Arab Emirates has increased. It should also be noted that while Japan was among the five main markets during the nineties, it is no longer one of the top five now.

As seen with exports, Pakistan’s imports are also concentrated with regard to their origin, although import concentration is relatively lower than for exports. In originated from five markets - EU, Saudi Arabia, United States, Kuwait and China. Over the long term, the major change in the origin of Pakistan’s imports is a reduction of the importance of the triad i.e. United States, Japan and EU, to a large extent to the benefit of Saudi Arabia and Kuwait. The change has occurred when linked to petroleum products.

Exporters should follow the same careful credit principals they follow for domestic customers. An important reason for controlling the credit period is the cost incurred through use of working capital or through interest and fees. If the buyer is not responsible for paying these costs, then the exporter should factor them into the selling price. Pakistan faced an economic and political crisis that had little to do with the global crisis. Pakistan’s cumulative terms of trade losses from the world price increases in fuel and food is estimated by the World Bank. The postponement of key policy decisions to pass on the price hikes to consumers, neglect of economic management during the transition from the military to the democratic elected government and internal security problems arising from its role as a front line state in the war against terrorism exacerbated the situation.

As many exporters know, usually foreign buyers press them for longer payment periods. They need to determine the appropriate credit period and, generally, a useful guide for this is the normal commercial terms in the exporter's industry for internationally traded products. Buyers generally expect to receive the benefits of such terms. Once credit terms are extended to a buyer, they tend to be precedent for future sales, so the exporter should review with special care any credit terms extended to first-time buyers.

Export regime has been liberalized to do away with public sector monopolies to permit full private sector participation. For reasons of environment, public health and morality, or Pakistan's commitments under multilateral conventions, export of 13 products (e.g. drugs, endangered species etc.) is not allowed. Food security considerations had obliged Pakistan to restrict the export of wheat and its milled products. This restriction has been removed and these products are now freely exportable. In a significant departure from traditional policies Pakistan has taken the decision to allow intra-trade in all agricultural products, regardless of the level of domestic production.

We want concentrated on making policy of Pakistan's export base more competitive through on shore capacity development, supply-chain management, and greater value addition. New measures have been introduced to cater to genuine export needs. Foreign buyers of capital goods may make down payments that reduce the need for financing from other sources. In addition, buyers may make progress payments as the goods are completed, which also reduce other financing requirements. Letters of credit that allow for progress payments upon inspection by the buyer's agent or receipt of a statement by the exporter that a certain percentage of the product has been completed are not uncommon.

Analysts focus on poor labour productivity; outdated technology; lack of management development, efficiency improvement, research, product development, market development; few next generation export industries; and limited awareness e-commerce and online services. Government ministries suffer from insufficient capacity in trade matters and research resources. Pakistan lacks internationally recognized accreditation, certification and testing facilities. Awareness and knowledge of services exports is lacking. Business environment constraints include little export oriented FDI; dependence on low tech industries; weak trade bodies; few private business support services; poor infrastructure; lack of risk capital; lack of international trade professionals. Labour standards are becoming more important to export industries. Pakistan faces a particular problem with buyer and consumer resistance to buying from manufacturers who employ children, in spite of efforts to eliminate this practice in export industries. There is general awareness of the main constraints progress is being made in addressing them, but not on a sufficient scale.

Textiles are Pakistan’s main export. Spinning and weaving is done in large mills. Finished goods are mainly manufactured by SMEs. There has been no immediate decline in exports due to the end of the MFA. In spite of healthy growth the sector faces various technical and commercial constraints to growth and there is a lack of a cohesive strategy agreed by the various industries which make up the sector. Pollution is a major problem. The leather industry faces particular problems in trying to increase the proportion of finished products it exports because of the structure of the international leather trade. Agriculture accounts for 50% of employment. Cotton is the main export commodity. Exports of other agricultural produce are growing, but from a modest base. Exports are constrained by protectionism in the developed economies, and by SPS and transport problems. Services are important in the domestic economy but little studied. Export of services is under developed, as are services which support exports of goods. The draft action plan includes proposals for tackling the constraints faced by each of these sectors.

Pakistan’s industry of carpet plays a critical part in economy of Pakistan. It is not only a major earner for foreign exchange in an economy they also contributes to reduce poverty in rural areas and also in remote rural areas where it is a major source of income for those families who have no other source for living, apart to the marginal agriculture. Families easily enter carpet-making as an occupation as they require few infrastructural facilities in compression of other industries.

India and Bangladesh did not suffer much from the financial crisis while the subsequent recession has lowered the demand for their exports. India has shown a remarkable resilience being a large domestic market, having a large burgeoning middle class with rising purchasing power and well regulated capital flows. The risks from India’s exposure to the international financial markets have been offset by strong foreign exchange reserves, prudent debt levels, high savings rate, sound financial sector and a pro-active monetary policy management. The Central Bank responded by injecting liquidity into the financial system and allowing a depreciation of exchange rate, helping in arresting capital outflows. Most impressive is the progress in East Asia thanks to the large growth of China

Pakistan want to export industry focussed vocational training, internationally recognised standards certification, and better provision of market information are essential requirements which should be met through a common public/private effort. Support for individual firms, especially SMEs, is required to improve management methods and upgrade technologies. Services and services exports need to be given greater importance and attention. MoC must act as a catalyst for, and monitor, developments for which it is not directly responsible but which impact on trade such as physical infrastructure. Increased investment is essential for Pakistan to achieve its development targets.

As in many other countries, anti-export bias partly derives from the fact that tariffs on imported products disadvantage domestic exporters when their competitors can source such inputs at world prices. These disincentives are normally dealt with by trade export promotion measures such as rebate of import duty on imported inputs, specific export zones and dedicated export factories, which aim to give exporters access to an approximation of free trade on the import side. In addition countries seek also to encourage exports through others measures like exemption of sales taxes and incomes taxes as well as confessional export financing. Most of these measures exist in Pakistan.

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