SBP rules out any extension in Covid reliefs

KARACHI: The State Bank of Pakistan (SBP) has ruled out any extension in concessionary financing schemes announced last year to support businesses and individuals amid the Covid-sparked lockdown.

The SBP said it has no plans to extend the period of pandemic-related reliefs once they expire.

“SBP measures that were introduced during Covid have achieved their desired objectives of providing appropriate support to the economy during the Covid crisis,” the SBP’s spokesperson said in an email.

The SBP’s measures to support the economy injected an estimated 4.8 percent of gross domestic product in business and household cash flows during the last year.

This clearly implies that temporary economic refinancing facility (TERF) to provide an incentive to businessmen not to delay investment decisions would also come to an end this month. Refinance facility for combating Covid - 19 will end on 30 June, 2021.

The SBP’s spokesperson said soon after the beginning of Covid-19 pandemic last year it took a number of proactive steps to safeguard the economy from its negative fallout.

These measures included a large cut in the policy interest rate by 625 basis points in a short span of time, concessional finance scheme to prevent layoffs, deferment of principal amount and restructuring of loans schemes to provide liquidity support to businesses and households, and concessional finance scheme to support hospitals.

The financial institutions have deferred and restructured loans worth Rs897 billion as of February 26 under the loan extension and restructuring package of SBP. The approved and disbursed amount, under the SBP rozgar scheme launched to prevent layoff by financing wages and salaries of employees for six months for all kind of businesses except for the government entities, have increased to Rs238.2 billion and Rs212.4 billion by November 13, 2020 from Rs24 million and Rs23 million, respectively by end April, 2020.

Ehsan Malik, CEO of the Pakistan Business Council said the SBP expanded TERF to include balancing, modernisation and replacement of plant and machinery. In terms of boosting investment there hasn’t been as effective a scheme as this in recent history, he said.

“Indefinite continuity is clearly not possible. It comes with an interest subsidy from the SBP and there may be other programmes in which that could be deployed. Also extension of TERF is unlikely to meet the IMF’s support,” Malik said. “I see no negative impact of its termination. Indeed the investment in plant triggered by TERF, aside creating employment, will generate demand for working capital which should further boost private sector credit. Also there will be a positive multiplier effect in the extended supply chains and in the country’s economy. Industry has had enough time to avail TERF. Exporters will continue to enjoy concessional lending under the LTFF scheme to fund capacity additions.”