Textile Industry Set to Gain as Government Cuts Export Financing Rate by 3%

The Prime Minister Shehbaz Sharif has announced a 3% reduction in the Export Refinancing Scheme (EFS) rate, bringing it down to 4.5%  from 7.5%. The move aims to reduce borrowing costs for exporters and encourage higher foreign exchange inflows.

According to research from JS Global, textile exporters are likely to be the main beneficiaries, given their heavy reliance on short-term export loans. Southern cement manufacturers could see a modest improvement, though the overall effect is smaller.

Under the new structure, the EFS rate now stands three percentage points below the central bank’s policy rate, widening the gap and offering a competitive advantage for export-oriented industries facing high working capital costs.

Alongside the rate cut, the government has also reduced power wheeling charges, addressing long-standing concerns from industrial sectors with high energy expenses. These steps are expected to help improve efficiency and competitiveness in international markets.

The announcement has been broadly welcomed, especially by textile exporters, which are heavily dependent on short-term financing. Southern cement manufacturers may also see some relief, though the effect is smaller compared to the textile sector.

While the policy has potential to boost profitability, implementation remains subject to IMF approval, as Pakistan is currently under an IMF program. Formal clearance will be necessary before the new rates can take effect.

Historically, the EFS rate has remained close to the policy rate, but the current cut creates one of the widest gaps in recent years, offering exporters an unusual cost advantage at a time of external account pressures.

Historically, the EFS rate has closely followed the policy rate, but the new gap is one of the widest in recent years, giving exporters a significant cost advantage at a time when external accounts remain under pressure.