Photo Credits: Associated Press of Pakistan
ISLAMABAD, Aug 24 (APP): The footwear exports from the country witnessed a decrease of 2.53 percent during the first month of the current financial year (2020-21) compared to the corresponding period of last year.
Pakistan exported footwear worth $12.617 million during July 2020 against the exports of $12.945 million during July 2019, showing a negative growth of 2.53 percent, according to the latest data of the Pakistan Bureau of Statistics (PBS).
Among footwear products, the exports of leather footwear witnessed a nominal increase of 0.80 percent as it surged from $ 10.905 million last year to $10.992 million during the current year. The canvas footwear exports from the country witnessed a decline of 100 percent whereas the exports of all other footwear commodities also decreased by 20.07 percent during the period under review from $2.033 million last year to $1.625 million during July 2020.
On a month-on-month basis, the exports of footwear however, witnessed a growth of 13.87 percent during July 2020 when compared to the exports of $11.080 million in June 2020, the PBS data revealed. On a month-on-month basis, the exports of leather also increased by 12.62 percent whereas the export of canvas decreased by 100 percent and of all other footwear increased by 26.46 percent.
It is pertinent to mention here that the trade deficit during the first month of the current fiscal year dipped by 7.72 percent as compared to the corresponding period of last year. The trade deficit during July 2020 was recorded at $1.686 billion against the deficit of $1.827 million in July 2019, the data revealed.
During the month under review, the exports from the country increased by 6.10 percent, from $1.886 billion last year to $2.001 billion during the current year. On the other hand, the imports witnessed a negative growth of 0.70 percent by falling from $3.713 billion last year to $3.687 billion this year.
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Pakistan EXIM iunits needs USD finance TODAY
Anyone can raise capital in USD today – irrespective of central bank caveats.2 years ago,it was unviable and difficult. Today, it is VIABLE and EASY – all due to COVID.
Pakistan has staged a miraculous COVID turnaround and this is the next turn – ULTRA LOW COST FINANCE.dindooohindoo
Case 1
Take the US LIBOR (6 months BBA) at 30 BP in August 2020,id.est 0.30 %
Assuming a spread of,say 50 BPs for a bank like Habib Bank – a 1st Class Scheduled Bank (as it gets the LOC or Borrowing on the strength of its Balance sheet)
Habib will onlend it to Pakistan SMEs at say a spread of 150-250 BP
Aggregate USD lending rate will be 1.8 to 2.8%
If the borrower is an exporter,and is raising Packing credit,which will liquidate in 3 or 6 months – he keeps an open exposure on the USD loans,qnd offsets it with the USD export collections
It SOUNDS good – but it is not a CERTAIN gain,as there CAN BE an OPPORTUNITY loss
If PKR falls by 5 % in 6 months and if Export Packing Credit is available in PKR at,say 9%,then post the PKR rupee loss,the NET COST of the Packing Credit,in PKR = Minus 100 BP.
But still there are people who do not want to take any view on the PKR/INR markets – and so,they want to borrow in USD so that they have outsourced their FX nominal risk,to a neutered FX exposure
SO HOW SHOULD PAKISTANI ENTITIES,RAISE USD LOANS ? It is fairly simple ! There are 3 Options
Option 1
1st Take the Export Packing Credit loan in PKR,at say,750-1000 BPs of say 500 Million PKR (as banks do not want to lend in USD,as then,no one will take PKR loans !)
Assume this is a 6 months credit,and so,exports are expected at 1 Billion PKR in 1 year
For 50% of the borrowing,and assuming exports as above,the borrower should short the dollar (forwards only) and get a premium of say between 500 – 900 BPs,at various points of time
So on a Net basis,you have a USD borrowing of 50% of 500 Million PKR,at 250 – 100 BP,and it is on TAP,as the entity will drawdown the Packing credit,when it wants,and short the USD,when it wants
On the Date of the liquidation of the Forward contract,he has to get the USD “FROM SOMEWHERE”.Even if there is a War,the borrower will MANAGE to get the USD from somewhere
Option 2
If the prospective borrower is an exporter,then he should import duty free on duty free licences.
For that he will need to import,and so,will need to import,on Import Usance LCs or Buyer LCs
In a LC,the overseas supplier,is taking a risk on Habib Bank (who opens the LC) and the UCP Rules
With 6 Months US Libor at 0.30%,the supplier can give a 6 months LC credit at Nil interest rates (subject to his exposure norms)
Some suppliers and overseas banks,MIGHT not accept Habib Bank LCs,and so the LCs will need to be confirmed (with confirmation charges)
A Pakistani exporter with a 200 Million USD Top line,should be able to open LCs on an annualised cost of 125- 150 BPs
A Pakistani exporter with a 500 Million USD Top line,should be able to open LCs on a FIXED advalorem cost of say 100 USD per LC – which will make the annualised cost close to ZERO %
But if such an exporter needs to pay a % fees,then he should enter into clean credit discounting arrangement or a factoring/forfaiting deal,with some international bankers in London/Singapore etc or use the discounting limits of the suppliet.
For those exporters who cannot open LCs – they can use 3 rd party financiers to open the LCs,and convert their finance cost,into USD,And then, the LCs can be Rolled on and on and on – until the SBP calls up the borrower
So,in import finance,if the LC costs are lowered or converted into a fixed value,and LC confirmation is waived by the foreign supplier or his bank – a Pakistani exporter can easily raise working capital finance at ZERO % cost,IN USD (and set off the LC retirement, with the foreign remittances).
This all excludes LC engineering like Transferable/Diviisble LCs etc.
But the cost can be made NEGATIVE easily, if the imports are on Duty Free Licences,from a Front company,in say,Dubai.
So if the importer overstates the LC amount – he raises an ECB at Zero % cost or Near Zero Cost – and the extra funds,are parked with the Front company for rotation.The PKR hedged
cost of that extra fund,will be less than the Habib Bank PLR
Option 3
Even for Pakistani entities who have no exports,their imports can be financed at 100-200BP per annum,on LCs or on Clean Credit (for regular importers)
Even after loading the FX premiums the loaded cost should be 6-8%,which will be much lower than the CP or CD rates in Pakistan
For Regular importers with perfect payment history,the suppliers can do recourse and non-recourse financing, by discounting the drafts on the Pakistani importers,or holding the bills to maturity (obviating the LC)
Better still,the overseas suppliers can discount the drafts on Pakistani importers,with Pakistani Billionaires in London – who are parking their cash in the call market at 0.10%.They can be offered 100 BPs !
In some cases,the Pakistani Importer and the Pakistani Billionaires,might be the same person,but with different legal entities
The Problem
The Problem is that Pakistani Banks find “not so creative” tools,to make USD financing unviable,for Pakistani entities – by loading ad valorem % charges,which on an annualised basis,make the transaction unviable
Hence,at least for imports (unlike exports,where an exporter can short the USD to swap the PKR loan into a USD Loan),the Pakistani entities have to use supplier financing,and tie up with banks,in London etc., to discount,negotiate,factor and forfait their bills/drafts.
Basically,it is the Country Risk of Pakistan (created by Indian Vilification) which causes the chain of confirming,advising and other charges,which make the LC transaction unviable, from Pakistani Banks.
Many Pakistani exporters will have a payment rating and credit rating – HIGHER THAN THE PAKISTAN SOVERIGN and also,that of HABIB bank (as Habib is exposed to the economic and credit risk,of Pakistan and its Banking system)
Hence,the time has come for some Pakistani Millionaires and Billionaires to use their surplus cash parked in T-Bills etc., to open a EXIM bank in London or Dubai,to use creative exim financing options ONLY for Pakistani Exporters and Importers (beyond a certain size).That will slash the costs of Pakistani EXIM units,and also,the said EXIM bank,can be used to offer innovative credit default options,on clean credit exports,by Pakistani exporters,to Africa and other nations.
If the Pakistani Millionaires put in,say USD 50 million,in equity and raise USD 200 in debt,then in one year,their primary discounting and financing business,assuming a 3 months tenor,will be a Billion USD,and if they start offloading and re-discounting the bills,with other bankers and financiers – the aggregate financing turnover,should be 10-15 Billion USD – on a seed of USD 50 Million.There is no way,the millionaires will earn that kind of yield,in any Junk Bond in the world
Only a Pakistani can appraise the credit and intent of a Pakistani borrower,and also,have the ability to make the borrower PAY.