Pakistani Banks Deferred Rs. 651 Billion Loan Payments: IMF

Under the State Bank of Pakistan (SBP)’s temporary regulatory measures, banks have deferred a total of Rs. 651 billion of clients’ payment 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 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 to:

  • Support hospitals and medical centers to purchase equipment to detect, contain, and treat COVID-19 (34 hospitals, Rs. 6.3 billion, to date)
  • Stimulate investment in new manufacturing plants and machinery, as well as modernization and expansion of existing projects (118 new projects, Rs. 78 billion)
  • Incentivize businesses to avoid laying off their workers during the pandemic (2,633 firms, Rs. 213 billion)

The State Bank introduced temporary regulatory measures to maintain banking system soundness and sustain economic activity. More recently, it introduced mandatory targets for banks to ensure loans to the construction sector accounts for at least 5 percent of the private sector portfolios by December 2021.

The central ban has introduced further regulatory measures to facilitate the import of COVID-19-related medical equipment and medicine. These include (i) lifting the limit on import advance payments and import on open accounts and (ii) allowing banks to approve an Electronic Import Form (EIF) for the import of equipment donated by international donor agencies and foreign governments.

SBP has also relaxed the condition of 100 percent cash margin requirement on the import of certain raw materials to support the manufacturing and industrial sectors, the report added.

The report added that a relief package worth Rs 1.2 trillion was announced by the federal government on March 24, which has been almost fully implemented. The unexecuted part of the relief package will be carried forward to the fiscal year 2021.

In addition, the fiscal year 2021 budget includes further increases in health and social spending, tariff, and custom duty reductions on food items, an allocation for ‘COVID-19 Responsive and Other Natural Calamities Control Program’ (Rs. 70 billion), a housing package to subsidize mortgages (Rs. 30 billion), as well as the provision of tax incentives to the construction sector (retail and cement companies) to address the acute employment needs generated by the lockdowns.

Since the onset of the crisis, provincial governments have also been implementing supportive fiscal measures through June 2020, consisting of cash grants to low-income households, tax relief, and additional health spending (including a salary increase for healthcare workers).

For instance, the government of Punjab’s measures included a Rs 18 billion tax relief package and a Rs 10 billion cash grants program. The government of Sindh’s measures included a cash grant and a ration distribution program of Rs 1.5 billion for low-income households. The fiscal year 2021 budgets for provincial governments also provide tax relaxations and sizeable increases in expenditure allocations, especially on health services, to mitigate Covid-19’s effects.

Lockdown restrictions have been lifted across all provinces, and economic activity has been allowed to fully resume subject to the implementation of SOPs starting from August 10. Educational institutes as well as recreational places, restaurants, malls, and retail outlets have reopened starting from September 15.