The State Bank of Pakistan (SBP) is likely to continue with the house refinancing scheme, WealthPK reported on Sunday quoting economic experts.
The report says, granting ‘autonomy’ to the SBP was a major roadblock to the resumption of the International Monetary Fund’s Extended Fund Facility to enable Pakistan to shore up its foreign exchange position. However, the government managed to get the State Bank Amendment Bill passed from the parliament, thus empowering the central bank to primarily focus on keeping inflation in manageable limits through effective fiscal and monetary policies without any government interference.
After Pakistan enacted the legislation regarding the central bank’s autonomy and the Supplementary Finance Bill with the latter stipulating many tax measures and withdrawing subsidies to many sectors, the IMF okayed its sixth review for Pakistan, approving a tranche of $1 billion on February 2, thus bringing the total disbursements to $3 billion so far.
However, after the disbursement of the tranche, the IMF has also proposed further measures for Pakistan to ensure its economy grows at a sustainable pace. Acknowledging the progress of the country, the bank, however, believes Pakistan still needs to take crucial steps to eradicate economic imbalances.
According to the report, one of these measures is to ask Pakistan to wind up all the refinancing schemes the central bank is currently running.
The draft of the State Bank Amendment Act clearly states that the bank shall not “undertake any quasi-fiscal operations or development finance activities” – where development activities were defined as “any activity undertaken to promote any priority sector such as agriculture, SMEs, housing and others”.
However, the ministry of finance has issued a clarification, stating that the central bank will continue the refinancing activities. Of the development financing activities, providing housing loans is a vital segment of the State Bank’s policies to ensure provision of low-cost housing to teeming millions under the government’s Mera Pakistan MeraGhar initiative.
Talking to WealthPK about the central bank’s autonomy, DrSajid Amin Javed, an economist and a research fellow at the Sustainable Development Policy Institute, believes the SBP Amendment Act is a step in the right direction. Regarding the IMF’s insistence that Pakistan take back house financing facility, DrJaved points to the casual nature of the IMF tone regarding withdrawal of this facility.
“IMF is not pushing Pakistan for withdrawal of the facility with the same vigour as it was for the SBP autonomy. Hence, the central bank is not bound to unwind the house financing facility with immediate effect. It can begin doing so gradually, which may take, say, a couple of years, and by that time the IMF’s funding programme will already have ended.”
DrJaved further says that the IMF’s insistence regarding withdrawal of refinancing schemes and the creation of a development finance institute (DFI) is actually related to market forces (commercial banks). These market forces have to decide whether they want to continue with the schemes or not, he says, and adds: “Development finance does not fall within the mandate of the central bank, whose primary objective is to ensure price stability.”
However, in the context of Pakistan, the State Bank appears to be a better alternative for managing the refinancing schemes as the credit and financial markets of Pakistan are not strong enough to include high-risk clusters of middle to low-income people in financing schemes.”
DrJaved stresses that development finance schemes are crucial for a developing country like Pakistan.
