IMF Highlights Pakistan’s Efforts to Deal With COVID-19 - Android

The government of Pakistan extended the incentives for the promotion of the construction sector due to the second wave of… Read More

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The government of Pakistan extended the incentives for the promotion of the construction sector due to the second wave of COVID-19 to the end of December 2021, noted the International Monetary Fund (IMF).

The Fund, in its updated report, “Policy Actions Taken by Countries,” reviewed various steps Pakistan has taken since March to deal with the COVID-19 crisis. These included a housing package to subsidize mortgages and the provision of tax incentives.

The report noted that following the second wave of infections, the daily new cases have exceeded the 2,000-mark, and the positivity rate was on an upward trend before moderating in mid-December

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To mitigate the second wave, smart lockdown measures have been re-imposed, along with a general ban on public meetings, rallies, and the closure of educational institutions and venues such as cinemas, theaters, and wedding halls. Educational institutions are expected to reopen in phases from January 18.

In early December, the government applied to the UN’s COVAX Facility, which will cover priority groups around 20 percent of the population. The government is also in discussions with several of the vaccine manufacturers and with donors (World Bank and Asian Development Bank) for the procurement of extra vaccines, which will be funded with a $250 million budget allocation.

The launch of the vaccination drive is expected in the second quarter of the calendar year 2021.

The unexecuted part of the relief package worth Rs. 1.2 trillion is being carried forward to the fiscal year 2021.

Also, 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), got extended in the context of the second wave to the end of December 2021.

IMF further stated that the State Bank of Pakistan (SBP) has expanded the scope of existing refinancing facilities and introduced three new ones to:

• Support hospitals and medical centers to purchase COVID-19-related equipment (39 hospitals, Rs. 8.36 billion, to date).
• Stimulate investment in new manufacturing plants and machinery and modernization and expansion of existing projects (346 new projects, Rs. 278 billion, to date).
• Incentivize businesses to avoid laying off their workers during the pandemic (2,958 firms, Rs. 238 billion, to date).

These facilities have been extended beyond their original deadline of June 2021 to September or December 2021.

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The SBP introduced temporary regulatory measures to maintain the banking system’s 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 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 (Rs. 659 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.
• Suspending bank dividends for the first two quarters of 2020 to shore up the capital.

The SBP has also introduced mandatory targets for banks to ensure loans to construction activities that account for at least 5 percent of the private sector portfolios by December 2021.

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