ISLAMABAD, Feb 06 ( Alliance News) : The International Monetary Fund (IMF) has called on the State Bank of Pakistan (SBP) to back down from two key steps it has taken to promote housing and construction activities.
According to the sources, in July 2020, the SBP made it mandatory for banks to increase their share of housing and construction loans to 5% by December 2021.
The SBP also changed the Capital Advocacy Regulations in June 2021 to reduce the risk of banks investing in Real Estate Investment Trusts (REITs) from 200% to 100%.
The staff report, released in a ارب 1 billion tranche under the IMF’s resumed loan program, said the IMF had urged the SBP to suspend its loan due to concerns over financial stability. Take action.
Banks’ housing loan targets could pose a threat to financial stability and lead to misallocation of credit, the report said.
Syed Atif Zafar, research director at Topline Securities, says the IMF believes such interventions run counter to the principles of a free market economy.
However, he said that this is just a proposal that can be implemented in the medium or long term, we should not expect the SBP to end these concessions tomorrow.
The IMF said that social policy objectives for the economically weaker population, such as the provision of affordable housing, could be achieved more effectively than the “targeted budget subsidy program”.
The IMF urged Pakistani authorities to address long-standing structural flaws to help private sector lending.
Pakistan has agreed to set up a working group by the end of February to prepare a strategy paper that will address structural issues in the development of the housing and construction sectors.
Fahad Rauf, head of research at Ismail Iqbal Securities, says the IMF first demanded the withdrawal in April 2021.
However, he said that under the government’s stance on housing and construction sectors, the SBP, instead of backing down, extended the scope of concessions more aggressively.
He said that so far it seems that the IMF and the government are not on the same page, now it remains to be seen how the SBP works after becoming independent.
He added that the government would like the SBP to continue its efforts on housing and construction, adding that the IMF program would end in September. Can’t move
“We will not sign any other IMF program before the next general election,” he said.
However, he said that if the proposal was implemented, the withdrawal of concessions for construction and housing could hurt demand for cement, glass, steel and tiles.
The IMF has also asked the SBP to be more proactive in tackling the issue of under-investment of two private sector banks.
Although the IMF did not name these banks, Syed Atif Zafar said that the IMF was referring to ‘Summit Bank Limited’ and ‘Silk Bank Limited’ which have a shortage of capital as per SBP standards. Is.
Both banks can achieve this requirement either by obtaining equity injections from their existing sponsors or with the help of other wealthy investors.
Syed Atif Zafar said that the sponsors of Silk Bank Limited have been trying to sell it for the last one year.
There has also been talk of a new capital injection at Summit Bank, which will improve capital advocacy for the second-smallest lender in terms of total share price.
The IMF has also asked Pakistani authorities to set up a development finance body to transfer refinancing schemes from the SBP to the government.
A research note issued by Ismail Iqbal Securities said, “We believe that this will take time, if implemented, at the expense of working capital for exporters, especially in the textile sector.” Can add
The IMF also suggested that the government abolish sales tax exemption on fertilizers and tractors in the next budget.
However, the note added that the government has asked for time to convert this tax rebate into a subsidy, which could hurt the fertilizer sector and reduce the demand for more tax tractors.
The note said the government was planning to change the structure of personal income tax by reducing the number of rates and income tax brackets to boost progress.
Accordingly, the draft legislation will be ready by February and will be implemented in the 2022-23 budget.
The note added that the move would benefit the salaried class.