SBP sees TERF loans surging 67 percent in FY22

KARACHI: State Bank of Pakistan (SBP) expects loan disbursements under Temporary Economic Refinance Facility (TERF) increasing 67 percent this fiscal year, paving way for new industrial investments and stimulating economic growth.

The central bank noted it in its presentation at Post Monetary Policy Committee (MPC) Meeting Analyst Briefing.

The expected quantum of disbursements under TERF was estimated at Rs273 billion in FY2022, while actual disbursements in FY2021 stood at Rs163 billion, the SBP document showed.

“Spare capacity exists, suggesting the recovery still has some way to go before demand-side pressures emerge,” read a slide in the presentation.

The capacity, it said, was likely to be bolstered due to further investments under TERF.

According to the presentation, Utilization Index has been estimated to be lower in the current fiscal year, compared with FY2016-FY2019.

“The output gap is expected to remain open through FY2022,” it said adding, “New capacities under the TERF will also help increase exports”.

Introduced in March last year, this concessionary refinance facility is a pillar of the central bank’s efforts to incentivise businessmen to not delay investment decisions during the coronavirus pandemic. It got a great response and many firms applied for the loans after the SBP reduced the maximum end user rate from 7 to 5 percent on availing this financing.

Under the scheme, loans up to Rs5 billion were available per project, and were repayable on quarterly and half-yearly basis.

The scheme expired on March 31, 2021 with approved financing of Rs436 billion. The several letters of credit (LCs), opened by banks during the validity period of the scheme, will be disbursed this year.

The high uptake of the scheme suggests businesses are comfortable with incurring more debt in the light of the signs of the economic recovery.

Besides, banks extended this subsidised credit to the private sector companies during the pandemic-induced slowdown.

So, an improvement in the country’s economic outlook as well as improving business confidence boosted demand for SBP’s refinance facilities, especially Long Term Financing Facility and TERF.

The SBP, in its latest monetary policy statement, projects economic growth to rise from 3.9 percent in FY2021 to 4-5 percent this year.

In FY2022, growth is expected to pick up further, supported by measures announced in the budget, accommodative monetary conditions, and disbursements under the SBP’s TERF facility for investment and other refinance facilities, it said.

“Key budgetary measures include increased development spending and reduced regulatory duties, custom duties, FED [federal excise duty] and sales tax on the import of raw materials and capital goods,” it added.

Agricultural growth is also expected to contribute favourably despite reported water shortages at the start of the sowing period of Kharif crops.

Business sentiment is at an all time-high and consumer sentiment has improved further.

The key downside risk to growth stems from the resurgence of Covid cases associated with new strains of the virus both globally and domestically, amid still-low vaccination rates, it warned.

Imports are expected to grow on the back of domestic recovery and rebound in global commodity prices, and one-offs.

The FY21 import bill was inflated by $6 billion relative to history (10 percent of total imports) due to mobile phones, cars, food, cotton, vaccines and TERF.