Pakistan’s central bank is considering allowing exporters to forge joint ventures, acquire warehouses and invest in subsidiaries in export markets through the funds they keep in their foreign currency accounts.
The additional measures are aimed at boosting the country’s exports, which is a major challenge to the country’s economic managers. The much-needed boom in export is a must to control the mounting foreign debt, including borrowing from the International Monetary Fund (IMF).
The State Bank of Pakistan (SBP) allows exporters to keep 10-35% of their export earnings in their foreign currency accounts. The central bank has offered the exporters to spend the retained money abroad on multiple counters compared to a few counters at present.
“We are considering increasing the scope of utilisation of exporters’ special foreign currency retention account by allowing...investment in subsidiaries, joint ventures abroad in accordance with the Framework of Investment Abroad by Residents provided by the State Bank under Chapter 20 of FE Manual (and) payment for third-party warehousing services and shelf space expenses abroad,” read a letter received by a leading exporter from the central bank.
Exporters may also utilise the retained funds for payment for fee/ expenses related to advertisement, promotion, marketing and brand building abroad through a third-party agent or through a company’s own subsidiary/ liaison/ marketing office abroad; subscribe fee for participation in foreign exhibitions, fairs and e-commerce platforms for promotion/ marketing of company’s products; and payment of foreign consultant’s fee for obtaining services from abroad; refund of payment to foreign tourists on account of cancellation of their intended tours to Pakistan, for which they remitted advance payments to tour operators/ organisers in Pakistan. Besides, the central bank is also considering allowing the use of retained funds on a couple of other counters abroad.
At present, the exporters of goods are allowed to use the retained funds “to meet their promotion/ marketing commission and other related expenses abroad,” the central bank letter to the exporter read.
“Generally, exporters of goods are allowed to retain up to 10% (of their export earnings)…Further, in order to encourage and incentivise the services and IT sector to increase their export earnings, the SBP has allowed retention of up to 35% of their export earnings in the special foreign currency account,” the letter added.
An exporter told The Express Tribune that the exporters had proposed to the central bank from time to time to allow them to create assets abroad through the retained funds like acquiring warehouses, forming joint ventures and developing foreign brands with the prime objective of increasing Pakistan’s exports.
The Pakistan Business Council (PBC), a private sector business policy advocacy forum, submitted proposals to the authorities concerned in the recent past to help Pakistan-based companies acquire assets in overseas markets, build and market brands abroad and establish warehouses there, according to PBC CEO Ehsan Malik.
The business advocacy forum, which is composed of Pakistan’s largest businesses and groups including multinationals, said the authorities should allow the exporters to acquire tangible and intangible assets abroad for accelerating the growth of exports.
At present, the exporters are allowed to keep 10% of their export earnings and spend as they deem fit on market development.
“However, if they wish to acquire capital assets (abroad) to strengthen and sustain their exports, they are required to seek prior permission of the State Bank for investment of up to $5 million and the Economic Coordination Committee (ECC) for larger investment…whereas permissions take a long time,” the PBC said in its proposals.
It submitted that “no permission should be required from either the SBP or the ECC, if the sum to be invested in acquiring capital assets was fully funded from the accumulated market development retention balance available to the exporter.”
Where the intended overseas investment exceeds the accumulated balance available to the exporter in the retention account and the exporter has in the previous three years exported goods or services of at least $10 million per annum, prior permission would be required from the SBP if the shortfall between the investment and the balance available to the exporter in the retention account does not exceed $5 million, it said.
Similarly, prior permission would be required from the ECC if the shortfall exceeds $5 million, it said.
Export proceeds are required to be realised within the stipulated time period, failing which criminal action can be taken against the exporter and its owners/directors. Rather, “exporters should be allowed to ship goods either to their own warehousing facilities or to third parties and holds the good there until sold to a customer,” it said.
Published in The Express Tribune, October 23rd, 2020.
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