ISLAMABAD: While launching the Exim Bank of Pakistan (EBP), Caretaker Finance Minister Dr Sha­mshad Akhtar on Thursday ann­o­un­ced the export fin­ance schemes (EFSs) would stand transferred to the new institution after being pha­sed out from the State Bank of Pak­istan (SBP) because of legal compulsions.

The minister said EFSs were being phased out from the SBP under the reforms programme as part of the IMF programme and the management of those schemes would be separated from the SBP.

She said the operations and management of EFSs would now be the responsibility of the Exim Bank while the SBP would monitor the scheme and perform regulatory functions like eligibility and disbursement mechanisms.

The operationalisation of Exim Bank “is a proud moment and a major milestone” for the country as it would augment the banking and trade finance landscape, she said, adding similar institutions had disbursed a staggering $2.5 trillion in trade finance last year, substantially fostering exports across over 60 countries and boosting export investments.

The minister said the EBP would extend lending, credit insurance and guarantee services, thus supporting the exporters in enhancing the competitiveness of Pakistani exports globally. It would protect exporters against lending and credit risk default of foreign receivables thro­ugh insurance schemes and provide a level playing field against competitors reliant on their national Export Credit Agencies (ECAs) and Exims, facilitating access to broader global markets.

New institution plans credit insurance to safeguard exporters, banks

Notably, EBP would introduce export insurance products to safeguard exporters against credit defa­ult risks, empowering them to explore international infrastructure projects.

She, however, warned that EBP would have to navigate its operations effectively and balance export growth with diversification and mitigation needs of the export industry while managing the commercialisation and financial viability of the EBP itself which would be the key to its sustainability and survival.

Moreover, she said there was an urgent need that the operationalisation of the new bank should be accompanied by an effective export policy framework for streamlining the balance of payments for their sustainability that had been hurt in the past by low levels of export earnings.

She said the EBP would gradually reinforce its core functions of insurance while gradually managing export finance schemes in compliance with legal constraints and hoped that it would shape Pakistan’s trade finance through diverse products through a proper institutional framework backed by effective policies and regulatory framework.

Besides supporting the exporters directly, the new bank she emphasised, would also provide export credit insurance products that are designed and provided by banks so that banks were also protected against the risks of credit default by ensuring that risk credit default schemes are timely available.

As such, bonding products will protect banks against performance risk of exporters and both these products — credit risk insurance and bonding schemes through enhanced leveraging — would protect the balance sheets of the banks as well as the Exim itself.

She hoped EBP to adhere to international best practices while showcasing its instrumental role in disbursing trade finance globally. The EBP’s launch marks a transformative phase in Pakistan’s economic landscape, poised to unlock new horizons in trade and economic development, she said.

The EBP has been established by the federal government through the Export-Import Bank of Pakistan Act 2022 permitted for commencement of business by the SBP. The bank has issued Comprehensive Short-term Policies for some major players in the textile, IT and cement sectors, along with bank master policies and documentary credit insurance policies for two leading commercial banks under its trade credit insurance product line.

The Exim Bank’s trade credit insurance programmes allow exporters and their banks to offer open terms to international buyers and their banks, where letters of credit or prepayment had previously been the only safe way of doing business. Through these sch­emes, exporters and their banks can insure their businesses against international non-payments of receivables due to any of the multiple reasons covered under these policies, with EBP covering the loss incurred up to the values promised under each policy.

Published in Dawn, December 22nd, 2023