The launch of the Export-Import (EXIM) Bank of Pakistan is a major milestone for the people of Pakistan and will transform the banking and trade finance landscape in the years ahead.
As the institution matures it will shape the institutional framework for investment and trade finance, leading to stronger export performance and balance of payment stability. In this article I will share five key areas of strategic importance that will determine the EXIM bank journey.
EXIM Bank has the potential to enhance Pakistani exporters’ competitiveness in the international markets by offering lending, credit insurance, and guarantee services. This will create a level playing field for our exporters vis-à-vis their competitors, who already rely on their national EXIM Banks. Through its specialized products, the Bank can facilitate access to a wider global market, enabling our exporters to diversify their product portfolios and explore new markets.
Second, the most significant impact of the EXIM Bank is the introduction of export credit insurance products to Pakistan. EXIM will protect exporters against the risk of credit default on their foreign receivables. Similarly, a range of guarantee bonds will enable the service industry to bid for projects internationally such as those related to building roads and bridges and for IT projects.
The Export Credit Insurance products are designed for commercial banks to protect against the risk of default of export receivables, while bonds will protect the banks against non-performance risk of exporters. Both sets of products will protect the balance sheets of banks, making them highly attractive to mitigate risks. These products can transform the way commercial banks support their customers, complementing and enhancing their risk-taking capacity.
Third, EXIM will attract a significant level of contingent risk capacity into the country from the international private sector reinsurance companies and other EXIMs and ECAs globally. So in essence the business model of EXIM is based on a Public-Private Partnership, with international investment-grade entities. Hence, it is imperative that EXIM is steered effectively balancing the demands from the industry while managing the financial viability of the Bank.
Fourth, we have empowered EXIM Bank with a dual mandate. On one hand, its core mandate is insurance but EXIM mandate has been expanded to manage in a phased manner Export Finance Schemes (EFS); previously, SBP was undertaking the refinancing business.
Henceforth, we will gradually expand the capacity of EXIM to manage the concessionary credit facilities to exporters, with financing made available through budget allocations by the Ministry of Finance. As the regulator, SBP will ensure oversight of the EFS scheme and frame rules for eligibility and disbursement of EFS.
Lastly, the success of EXIM Bank will lie in its ability to adapt to International Best practices. Across the globe, EXIM banks play a crucial role in promoting international trade and economic growth. These specialized financial institutions provide a range of products and services to exporters, importers, and investors, often filling gaps where private-sector financing is unavailable or insufficient. EXIM banks are focused on delivering impact by providing specialized and innovative trade finance funding and risk mitigation options.
Last year about $ 2.5 trillion of trade financing was disbursed by EXIM institutions across the globe, helping to drive exports of more than 60 countries. One of the most successful institutions is the Vietnam EXIM. Since the launch, Vietnam EXIM’s push helped its exports grow to $ 336bn in 2022, from $ 124bn in 2012.
The key success of the Vietnam EXIM included facilitating the export of Vietnamese-built ships to international buyers and supporting the growth of the country’s shipbuilding industry. Similarly, it has supported automobile manufacturers to export to Southeast Asian markets. Leading IT companies have used Vietnam EXIM to expand their international operations and export software services to clients worldwide.
Vietnam EXIM has been a key catalyst in crowding in large FDI inflows, rising from $ 8bn per annum in 2012 to $ 16bn in 2022. Key investments include the Long Thanh International Airport, Nhon Trach 2 Thermal Power Plant and the Ca Mau Wind Farm. All these projects were co-financed by EXIM in collaboration with international partners.
Vietnam EXIM has played a key role in development finance through initiatives that include a focus on providing financial support to agricultural businesses and rural communities, promoting sustainable practices, including by actively supporting renewable energy projects and green technologies through dedicated financing programs, aligning with Vietnam’s climate goals.
In the end, Pakistan’s balance of payment sustainability depends on innovation and diversity in the structure of the economy for sustainable growth. To bring a fundamental shift there is a need to remove anti-export bias. The industry has to anchor itself on competitive principles and transition away from low-technology exports to high value added technology products. Nearly, 70 percent of the country’s exports continue to be low-technology products.
There is also an urgent need for product and market diversification. The textiles and clothing sector, which contributes only about 5% to world trade, dominates Pakistan’s exports, accounting for around 58% of total exports. Similarly, more than 50% of exports rely on only four markets - the USA, EU, China and Afghanistan. The country has been losing competitiveness in international markets and finds it harder to sell even within its traditional markets.
To facilitate exports to new markets and encourage the export of new products, we are operationalizing the EXIM Bank. The access to credit guarantees and insurance products for exporters will help to encourage them to target new markets for exports. We must move away from industrial and export subsidies as they impede innovation and product diversification.
The Government has put an immense responsibility on EXIM. This requires EXIM to be run by professionals and a competent Board. The management must ensure prudent business management and focus on diversification that not only hedges against market fluctuations but also positions Pakistan as a competitive player in a broader array of sectors.
EXIM Bank’s emphasis on innovation and market exploration has to be a driving force behind the nation’s adaptability in the evolving global trade landscape and will help our manufacturers build stronger linkages within the global value chains.
Copyright Business Recorder, 2023