The International Monetary Fund (IMF) has requested the State Bank of Pakistan (SBP) to roll back its financing measures that aim to support housing and construction activities.
The request, if implemented, will seek to reverse an SBP directive issued in July that had sought to increase to five percent the lending portfolios aimed at the housing and construction sector by December of last year.
According to media reports, a recent staff report of the monetary fund, which was released along with the $1 billion under the Extended Fund Facility, said that the IMF had “urged” the SBP to roll back the said measures due to concerns for “financial stability”.
The report raised concerns about how banks’ housing lending targets could pose risks and lead to financial instability, along with misallocation of credit.
The monetary fund recommended that a “budget subsidy programme” for the vulnerable population would have greater effectiveness in achieving goals like affordable housing.
Pakistan has given its agreement to make a working group by the end of this month which will come up with a strategy paper to resolve structural problems in the housing and construction sectors.
Moreover, the international lender has asked Pakistan to come up with a development finance institution so that refinancing schemes could be transferred to the government from the SBP.