Pakistan’s business community has come forward to defend the central bank’s subsidised refinancing facility, called TERF, introduced for promoting industrialisation during the Covid-19 pandemic.
They insist that Rs425 billion provided under the scheme will help ramp up economic activities while the amount is significantly lower than that provided by other countries.
Pakistan Business Council (PBC) – the business advocacy platform representing big domestic and foreign businesses – said in a tweet on Friday, “It (TERF/ Temporary Economic Refinance Facility) needs appreciation instead of criticism.”
“TERF was a bold move and like other long-term investments, will take time to produce positive returns for the country.”
The council and other trade bodies came forward in support of the scheme and “620 borrowers” after the government decided to conduct an audit as it suspected that the then Pakistan Tehreek-e-Insaf (PTI) government and the State Bank of Pakistan (SBP) misused the facility to incentivise the blue-eyed people.
The government may undertake a forensic audit to see whether funds were provided to loss-making energy company Hascol, whose officials were allegedly involved in a fraud of billions of rupees with the support of some bankers.
PBC Chief Executive Ehsan Malik said that the government had the right to check everything but secrecy rules did not allow banks to make their borrowers’ data public.
“TERF was a historical scheme. Banks usually do not offer such long-term financing for 10 years for industrialisation. We need to develop special-purpose development finance institutions (DFIs) for introducing such schemes in the future,” he stressed.
Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Irfan Iqbal Sheikh said that there must be check and balance on every scheme and there should be complete transparency.
“However, this is not an appropriate time to indulge in such things. We are passing through an economic crisis. We should purely focus on economic activities right now.” The PBC’s tweet further read that TERF was the single-most effective initiative taken by the SBP to kick-start industrialisation, especially during Covid when investment sentiment was weak.
Investment in Pakistan had lagged behind neighbouring countries and even textile industry, the country’s largest export earner, was in need of modernisation to remain competitive. There were other sectors as well that invested to upgrade their capacity to replace imports, it said.
The PBC maintained that it was a misconception that money was made available free of cost, adding that a concessionary fixed rate was applied for 10 years and Rs425 billion was approved for investment in local and imported plant and machinery through Letters of Credit (imports).
It did not cover investment in lands and buildings. With that, the total investment that TERF triggered was estimated at over Rs800 billion. Commercial banks carefully vetted each project before opening Letters of Credit. The Rs425 billion provided under TERF along with other Covid-related concessions and facilities pales when compared with the funds provided by many countries for their industries.
Earlier, the Public Accounts Committee (PAC) directed central bank chief Jameel Ahmad in an in-camera meeting to disclose the borrowers’ names and constitute a committee for audit.
Available information suggests the borrowers were mainly from the textile sector. Others included car-makers, tyre and cement manufacturers.
The FPCCI president said “it is time for the government to devise a strategy for cutting its high expenditures, adopting austerity measures, controlling unnecessary imports and ramping up exports to come out of the economic crisis.”
The government could conduct the audit of TERF borrowers at an appropriate time when the economy was in a growth phase, he suggested.
The central bank introduced TERF for a limited period of one year in March 2022 to encourage industrialists to press ahead with their investment plans even during Covid when the world was facing repeated lockdowns and economies were going into recession.
The SBP offered the subsidised scheme at a maximum 7% financing rate, but later cut it to 5% for all businesses, inclusive of the 1% refinance rate of the central bank.
Published in The Express Tribune, July 8th, 2023.
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