IMF Urged SBP To Wind House Financing Policy

Karachi: The IMF has urged the State Bank of Pakistan (SBP) to do away with the two key measures that the central bank has adopted over the past couple of years for Pakistan's Housing And Construction Sector Promotion. The IMF while releasing the recent $1 billion tranches has advised the SBP that these measures would affect the financial stability. The staff report released by the international lender said, “Banks’ housing lending targets could present risks to financial stability and entail a misallocation of credit.” It is to be noted here that the SBP, following the policy of the incumbent government for the Promotion Of House Financing In Pakistan, had imposed mandatory targets on the banks to increase the financing for housing and construction to at least 5% of their domestic private sector credit by December 2021 and now recently the SBP to 7% by December 2022. Moreover, in June 2021, the central bank had changed capital adequacy regulations to reduce significantly the applicable risk weight on the investment of the banks on the Real Estate Investment Trust (REIT). The banks for forced to implement the policy under strict instruction and consequently the housing finance saw an unprecedented growth of 85pc in the year 2021.

The IMF is of the view that a “well-targeted budget subsidy program” for the low-income group would be a much better approach towards social policy objectives. Syed Atif Zafer, Director Topline Security Research told the Dawn, “The IMF believes such interventions are contrary to the principles of the free market economy. But it’s only a recommendation to be implemented in the medium to long term. We shouldn’t expect the SBP to do away with these incentives tomorrow.” The government of Pakistan has agreed to set up a working group by the end of February to sort out the issues in the promotion of housing and construction. The IMF has also instructed the authorities to set up a development finance institution to transfer refinance schemes to the government from SBP. The government of Pakistan was also advised by the Washington Based money lender to remove sales tax exemption from fertilizer and tractors.

It is to be mentioned here that the incumbent government before coming into power had promised to construct 5 million houses in the country to enable the low-income group to own a house of their own. The visionary leadership of the country believes that promoting housing and construction would also promote at least thirty industries connected with the sector. The government is taking housing and construction as a complete industry in itself whereby the poor would not only own a house but also get employment that would also help uplift the structure of the economy. The current policy of the central bank is in line with the vision of the prime minister. The instruction of the IMF if followed would harm the vision of the premier.