PBC says central bank’s TERF scheme helped industries overcome Covid-19 challenges

KARACHI: Pakistan Business Council (PBC) on Friday said the Temporary Economic Refinance Facility (TERF) by the State Bank of Pakistan had helped the country’s industries boost their manufacturing activities by setting up new industrial units during weak investment challenges aroused by Covid-19.

SBP launched TERF, a concessionary finance scheme, in March, 2020 for businesses and industries to combat Covid pandemic challenges.

The scheme came into attention again recently when the National Assembly’s Standing Committee on Finance was told that $3 billion (around Rs425 billion at that time) had been given out as “interest-free loans” in the last government’s tenure. The Public Accounts Committee (PAC) also held a meeting on Wednesday, demanding a list of 620 individuals/companies which benefited through the scheme.

Speaking on the matter, PBC shared via its Twitter handle that TERF was the “single most effective initiative taken by the SBP. The plan was launched to kick start industrialisation, especially during Covid when the investment sentiment was weak.”

The Rs425 billion provided under TERF along with all other Covid related concessions and facilities were not significant in comparison to those provided by other countries for their industries, according to PBC.

“It needs appreciation instead of criticism. TERF was a bold move and like other long term investments, will take time to produce positive returns for the country,” the council emphasised.

PBC explained that a concessionary fixed rate was applied for a term of 10 years, allowing Rs425 billion to be approved for investment in local and imported plant and machinery through letters of credit.

“It is a misconception that money was made available free of cost.”

The scheme hadn’t covered investment in land and buildings, and commercial banks had carefully vetted each project before opening letters of credit, it added. “With that, the total investment that TERF triggered is estimated at over Rs800 billion.”

According to an economist Ammar habib Khan, the terms of the scheme were extraordinarily concessional. The State Bank provided liquidity (or the funds) for the scheme at a refinance rate of one percent per annum, while commercial banks could charge a maximum of 5.0 percent per annum on the loan. The eligibility of the scheme was largely restricted to large industrial units, effectively restricting the benefit of the scheme to a few hundred industrialists, and capital owners.

The scheme was initially launched with conditions, including long term finance facility for purchase of new imported and locally manufactured plant and machinery for setting of new projects, Rs5 billion per project, a tenure of 10 years including grace period up to 2 years, and maximum 7 percent per annum (SBP rate of refinance at 3 percent).

Roughly 80 percent of the loans had been allocated towards textile and apparel manufacturing, Habib stated in an article written for The News.

“Investment level in Pakistan has lagged behind our neighbours and even textiles, the country's largest export earner, was in need of modernisation to remain competitive. There were also other sectors that invested to upgrade capacity to replace imports,” PBC wrote. As per latest media reports, PAC in an in-camera meeting will examine the list of 620 individuals/companies got refinancing under TERF during the previous Pakistan Tehreek-e-Insaf government.