Under State Bank of Pakistan’s (SBP’s) temporary regulatory measures, banks have deferred a total of Rs. 644 billion payments of principal on loan obligations for one year to maintain banking system soundness and sustain economic activity, says the International Monetary Fund (IMF).
IMF in its updated report “Policy Actions Taken by Countries” reviewed various steps Pakistan has taken since March to deal with the COVID-19 crisis.
The economic activity worsened notably, and growth is preliminarily estimated at –0.4 percent in the fiscal year 2020. A gradual recovery is expected in the fiscal year 2021 as the economy reopens, it added.
The report stated that SBP has responded to the crisis by cutting the policy rate by a cumulative 625 basis points to 7.0 percent since March 17.
SBP has expanded the scope of existing refinancing facilities and introduced three new ones that aim at:
- Supporting hospitals and medical centers to purchase equipment to detect, contain, and treat COVID-19 (30 hospitals, Rs. 6 billion, to date)
- Stimulating investment in new manufacturing plants and machinery, as well as modernization and expansion of existing projects (76 new projects, Rs. 33 billion, to date);
- Incentivizing businesses to avoid laying off their workers during the pandemic (2,300 firms, Rs. 171 billion, to date).
The State Bank introduced temporary regulatory measures to maintain banking system soundness and sustain economic activity. These include:
- Reducing the capital conservation buffer by 100 basis points to 1.5 percent;
- Increasing the regulatory limit on the extension of credit to SMEs by 44 percent to Rs. 180 million ;
- Relaxing of the debt burden ratio for consumer loans from 50 percent to 60 percent;
- Allowing banks to defer clients’ payment of principal on loan obligations by one year (with a total of Rs. 644 billion being deferred to date);
- Relaxing regulatory criteria for restructured loans for borrowers who require relief beyond the extension of principal repayment for one year; and
- Suspending bank dividends for the first two quarters of 2020 to shore up capital.
More recently, the bank has introduced mandatory targets for banks to ensure loans to construction activities account for at least 5 percent of the private sector portfolios by December 2021.
SBP has introduced further regulatory measures to facilitate the import of COVID-19-related medical equipment and medicine. These include:
- Lifting the limit on import advance payments and import on open account.
- Allowing banks to approve an Electronic Import Form (EIF) for the import of equipment donated by international donor agencies and foreign governments, the report added.