The Pakistan Leather Garments Manufacturers & Exporters Association (PLGMEA) has urged the government to reduce its mark-up on export refinance packages and to raise the duty drawback rate. The concessions are necessary if the industry is to survive the sharp decline seen in exports over the past year, the industry says.

In a letter to Dr. Ishrat Hussain, the Governor of the State Bank of Pakistan, Fawad Ijaz Khan, chairman of PLGMEA highlighted the severity of the industry’s plight. During the period October 2001 - August 2002 exports fell 25% compared with the year before to $256 million, with the figure for August being 50% down on the year before. Many European and USA buyers had switched their production from Pakistan to China fearing non-delivery of goods and also because of their reluctance to visit Pakistan. Chinese prices were also undercutting those of Pakistan.

To win buyers back, the industry needed to improve its international competitiveness and in order to do this it needed to keep its costs down. Therefore, any reduction in the export refinance mark up - which represents the second biggest cost for leather garment producers after wages - would be a great help. Fawad said.

Specifically, the chairman proposed the freezing of the mark-up on Export Refinance Part I and II loans for the period September 2002 - August 2003. He suggested the new mark up be set at the rate the government charges the banks, which is 6.5% for Pakistan rupee loans and 2.98% for dollar loans.

Fawad went on to emphasise the severity of the liquidity crunch seen in the leather garment sector. A major part of business cash flows were now being directed toward the payment of mark-ups to the banks, he said. Many workers had been laid off in the last two months while many more now faced losing their jobs if action is not taken quickly. Fawad also expressed his dismay at the government’s recent decision to reduce the duty drawback rate on leather garment exports from 10.8% to 3.9%.

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