In a significant move to meet the conditions set by the International Monetary Fund (IMF), Pakistan has approved the phasing out of the subsidized export financing scheme that has been a cornerstone of the State Bank of Pakistan (SBP) for years. The decision, made on Friday, involves transferring a hefty Rs330 billion Long-Term Financing Facility (LTFF) portfolio from the SBP to the newly-established Exim Bank of Pakistan. This move is aimed at fulfilling one of the key commitments required by the IMF, which is currently holding back a crucial $1.1 billion instalment under the Extended Fund Facility (EFF).
The Economic Coordination Committee (ECC) of the Cabinet, under the leadership of Finance Minister Muhammad Aurangzeb, took this decision during its meeting. The meeting was attended by other key ministers, including those for petroleum, power, and investment. According to an official statement, the phasing out of the Rs330 billion LTFF portfolio is a strategic step to ensure the continued implementation of Pakistan’s financial commitments under the IMF agreement.
The phased transition involves the Exim Bank taking over the entire LTFF portfolio, with an additional Rs210 billion to be allocated to the bank to manage the new portfolio. The move also comes with a technical supplementary grant of Rs1.001 billion to help cover the subsidy requirements of the new LTFF portfolio for the fiscal year 2025.
The Exim Bank, which was set up under the Export-Import Bank of Pakistan Act 2022, is tasked with facilitating export expansion and import substitution. Historically, the SBP had been providing refinancing facilities under the Export Finance Scheme (EFS) and LTFF, two initiatives designed to incentivize exporters. These schemes have been in place since 1973, offering both commercial and Islamic banking options. However, under the IMF’s Extended Fund Facility, the SBP’s direct involvement in these schemes was slated for phasing out, with the Exim Bank taking over as the key executor.
As per the plan, the Exim Bank will not only take on the existing Rs330 billion portfolio but will also manage the fresh LTFF portfolio worth Rs210 billion. The government is expected to bear the cost of meeting the subsidy requirements for both the existing and new portfolios, with an estimated total cost of Rs91.466 billion.
The IMF’s condition of transferring the refinancing schemes from the SBP to Exim Bank is part of Pakistan’s broader strategy to improve its monetary policy transmission mechanism. The country is committed to phasing out these schemes over the next five years, with the process starting from the current fiscal year and extending until 2028, as per the terms agreed with the IMF under the Stand-By Arrangement (SBA). This transition aims to streamline the financing of export activities and shift more responsibility to the newly established Exim Bank.
In addition to this major development, the ECC also approved several supplementary grants, including Rs3.4 billion for various government initiatives. These included Rs2 billion for the Ministry of Information to clear outstanding advertisement dues, Rs430 million for parliamentarian schemes in Punjab, and Rs250 million to support the operations of the Jinnah Medical Complex & Research Centre (JMC&RC) in Islamabad. The JMC&RC allocation will assist in the construction of a state-of-the-art 1,000-bed academic medical center in the capital.
Furthermore, the ECC approved a supplementary grant of Rs24.556 million (equivalent to $87,671.21) to Mrs. Lia Bomba of JAED Textile Pvt Ltd, Australia, in compliance with the Supreme Court of Pakistan’s directive. This grant is a result of litigation related to an unpaid textile order, which was held responsible by the court due to insecure systems.
The move to phase out the subsidized export financing scheme marks a pivotal moment in Pakistan’s fiscal policy and its relationship with international financial institutions, particularly the IMF. By aligning with the IMF’s demands, the government hopes to secure the disbursement of vital funds that will aid in stabilizing the country’s economy during a period of intense financial strain.