SBP puts fresh disbursements on hold for housing, youth schemes

KARACHI: The State Bank of Pakistan (SBP) has put on hold fresh disbursements under the government markup subsidy scheme for housing finance and Prime Minister's Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES) which analysts say is an attempt to rein in the budget deficit to revive the IMF bailout.

“It is advised that the Government of Pakistan is considering review/revise features of subject Scheme in light of recent developments in the macroeconomic scenario,” the SBP said in a circular on Thursday.

“Accordingly, banks, development finance institutions, and microfinance banks are advised to put further disbursements under 'Mera Pakistan Mera Ghar (MPMG) on hold from July 01, 2022, till August 31, 2022. However, in those cases where partial disbursements have already been made till June 30, 2022, banks may release remaining disbursement under MPMG,” it added.

Analysts said this is an abrupt decision by the central bank. Though it has attributed the latest move to the changing economic conditions of the country, it seems it is the IMF behind this decision.

“The government wants fiscal consolidation to contain the budget deficit and mitigate its growing debt. The government also looks to curtail demand in the economy,” said an analyst.

“It is advised that the Government of Pakistan is considering reviewing/revising features of subject Scheme in light of recent developments in the macroeconomic scenario. Accordingly, banks participating as executing agencies under PMKJ-YES are advised to put on hold fresh disbursement from July 1, 2022, to July 15, 2022,” the SBP said in another circular.

Banks almost doubled their housing and construction finance portfolio to Rs404 billion as of March 31, 2022, from Rs204 billion a year earlier, according to the SBP’s number released in April.

Banks showed strong progress in approving and disbursing the financing under the MPMG scheme against the manifold increase in applications by borrowers to avail of housing finance. Till April 11, 2022, banks received applications for housing finance amounting to Rs409 billion, which was merely Rs57 billion a year ago, reflecting an increase of more than seven times, it said.

In October 2020, the government augmented these efforts by introducing the MPMG scheme. Available in both conventional and Islamic modes, this scheme enables banks to provide financing for the construction and purchase of houses at very low financing rates for low to middle-income segments of the population.

Key initiatives taken under the MPMG scheme included allowing acceptance of third-party guarantees during the construction period, waiver of Debt Burden Ratio (DBR) in case of informal income, and the introduction of standard facility offer letters by the banks. The SBP had also advised banks to develop and deploy income estimation models for borrowers with informal sources of income.